MOODY S AND FITCH WARN OF CREDIT NEGATIVE FACTORS

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1 ddo22 WEDNESDAY, SEPTEMBER 2, 205 FBM KLCI KLCI FUTURES STI RM/USD CPO RM OIL US$ GOLD US$ Subscribe NOW! 3 months for RM30 (or more if you like) subscribe.theedgemarkets.com CCM shuts down fertiliser plant in Shah Alam 4 CORPORATE & MARKET 4 Special Economic Committee sees growth despite issues troubling Malaysia CORPORATE & MARKET 5 FGV mulls revising Indonesia deal terms CORPORATE & MARKET 6 2 submit proposals to bid for Bandar Malaysia project MOODY S AND FITCH WARN OF CREDIT NEGATIVE FACTORS TUESDAY, SEPTEMBER 8 Balancing work and life as a team 8 GENERAL NEWS 5 Police to question Bersih 4 rally organisers GENERAL NEWS 6 This digital copy is brought to you by Make Selangor investment firm a statutory body OPINION 7 Maybe this slowdown is different Say political uncertainties could erode economic fundamentals. Ahmad Naqib Idris has the story on Page 4.

2 ddo22 WEDNESDAY, SEPTEMBER 2, 205 FBM KLCI KLCI FUTURES STI RM/USD CPO RM OIL US$ GOLD US$ Subscribe NOW! 3 months for RM30 (or more if you like) subscribe.theedgemarkets.com 4 CCM shuts down fertiliser plant in Shah Alam TUESDAY, SEPTEMBER 8 Balancing work and life as a team 8 CORPORATE & MARKET 4 Special Economic Committee sees growth despite issues troubling Malaysia CORPORATE & MARKET 5 FGV mulls revising Indonesia deal terms CORPORATE & MARKET 6 2 submit proposals to bid for Bandar Malaysia project GENERAL NEWS 5 Police to question Bersih 4 rally organisers GENERAL NEWS 6 Make Selangor investment firm a statutory body OPINION 7 Maybe this slowdown is different MOODY S AND FITCH WARN OF CREDIT NEGATIVE FACTORS Say political uncertainties could erode economic fundamentals. Ahmad Naqib Idris has the story on Page 4.

3 2 WEDNESDAY SEPTEMBER 2, 205 DIGITALEDGE DAILY For breaking news updates go to ON EDGE TV Sime Darby building sustainable, urban communities Confirmed Najib won t be attending anti-graft conference The Edge Markets Sdn Bhd (04546M) Level 3, Menara KLK, No Jalan PJU 7/6, Mutiara Damansara, 4780 Petaling Jaya, Selangor, Malaysia Publisher and Group CEO Ho Kay Tat Editorial For News Tips/Press Releases Tel: Fax: Senior Managing Editor Azam Aris Executive Editors Kathy Fong, Jenny Ng, Siow Chen Ming, Surinder Jessy, Ooi Inn Leong Associate Editors R B Bhattacharjee, Joyce Goh, Jose Barrock, Vasantha Ganesan Editors Cindy Yeap, Kang Siew Li Assistant Editors Adeline Paul Raj, Tan Choe Choe Chief Copy Editor Halim Yaacob Senior Copy Editors Lam Seng Fatt, Melanie Proctor Copy Editor Evelyn Chan Art Director Sharon Khoh Design Team Cheryl Loh, Valerie Chin, Aaron Boudville, Aminullah Abdul Karim, Yong Yik Sheng, Tun Mohd Zafian Mohd Za abah, Noorain Duasa Asst Manager-Editorial Services Madeline Tan Corporate Managing Director Au Foong Yee Deputy Managing Director Lim Shiew Yuin Advertising & Marketing To advertise contact GL: (03) Fax: (03) Chief Marketing Officer Sharon Teh (02) General Manager, Digital Media Kingston Low (02) Senior Sales Managers Geetha Perumal (06) Fong Lai Kuan (02) Peter Hoe (09) Gregory Thu (02) Senior Manager, Integration Shereen Wong (06) Head of Marketing Support & Ad Traffic Lorraine Chan (03) Ad Traffic Asst Manager Roger Lee (03) Operations To order copy Tel: / 8033 Fax: China jitters send global stocks tumbling Global growth likely to be weaker than expected months ago BY MARC JONES LONDON: World stocks and commodity prices tumbled yesterday, as poor Chinese data saw fears about its economic health intensify. After a few upbeat days for world markets, concern about China revived after surveys showed its manufacturing sector shrinking at its fastest pace in three years and its services sector also cooling. Asian stocks, particularly in Japan and Australia, fell overnight, and the gloomy mood extended to Europe. The FTSEurofirst 300 dropped 2.3%, following its worst month in four years. Futures prices also pointed to Wall Street opening 2% lower. Oil CLc fell back US$.50 (RM6.24) towards US$50 a barrel, halting the biggest three-day surge in 25 years. The problem is that we have these brief spells of optimism like we had last week when US gross domestic product was revised up, but the overall theme is still the weakness in China and that is very hard to dispel from markets, said Philip Marey, a strategist at Rabobank in the Netherlands. While shares and commodities remained the focus, the mood was similarly wary in the currency and bond markets. The safe-haven Japanese yen and the low-yielding euro both rose against the dollar, to 20.6 per dollar and US$.323 to the euro. Gold, another favourite of investors during periods of uncertainty, was up at US$,43 an ounce. It had risen 3.5% in August, its best month since January. The head of the International Monetary Fund, Christine Lagarde, summed up the situation in a speech in Indonesia, where she said global economic growth was now likely to be weaker than had been expected just a few months ago. She cited both a slower recovery in major advanced economies and a further slowdown in emerging nations and highlighted the need to be vigilant for spillovers from China s stutters. The transition [in China] to a more market-based economy and the unwinding of risks built up in recent years is complex and could well be somewhat bumpy, she added. Reuters Silicon Valley rule of thumb points right way BY CHRISTIAN ZHANG NEW YORK: Silicon Valley is double-checking its math. In a land that fetishises growth over profitability, there s a new rule of thumb for software firms that establishes a relationship between the two rates. A Breakingviews analysis suggests it can be a useful guideline. Investors should just be wary of extrapolating too much from it. Technology entrepreneurs and their backers typically pay more attention to the top line than the bottom line. That s starting to change a bit, with venture capitalists buzzing about a new back-of-the-envelope calculation. Brad Feld of Foundry Group and Fred Wilson of Union Square Ventures both have blogged about the idea that annual revenue growth plus operating margin call it Gams, for growth and margin sum should equal 40%. That would help a company go some way to justifying losing money. If revenue is growing at, say, 75%, then it could burn cash at a rate of 35% of sales. Similarly, if growth slowed to 30%, an operating margin of 0% would suffice. Just as some investors look to quotients like the PEG ratio, which measures a price-to-earnings multiple against a company s growth rate, Gams could be a useful gauge for fast-growing but unprofitable firms selling shares in an initial public offering (IPO). A Breakingviews analysis of 27 publicly traded, subscription-based software compa- nies found that those that became profitable within three years of their IPO on average had previously generated higher Gams than those that remained unprofitable. The 40% threshold does not necessarily portend investment success, which may be a relief to owners of Box and Zendesk, both of which fall short. Jive Software tallied a sum of -4% before its 20 IPO. Since then, its growth has slowed and its deeply negative margins haven t improved. Jive s share price also has tumbled by 75%. Marin Software s stock has An investor at a brokerage house in Shanghai last Tuesday. Poor Chinese data saw fears about its economic health intensify. Photo by Reuters suffered similarly even though it could tout a pre-ipo Gams of 44%. Any rule of thumb runs the risk of being corrupted or distorted. There s no special magic to the 40% figure. And there s even less evidence the model suits social media, online commerce or other sorts of tech business models. Even so, a reasonable inference from the analysis is that software developers and their investors can afford to look beyond just runaway growth and needn t fear turning a profit. A healthy balance between the two will work. Reuters IN BRIEF MB denies Johor Sultan discredited govt NUSAJAYA: Johor Menteri Besar Datuk Seri Mohamed Khaled Nordin denied yesterday that the Sultan of Johor, Sultan Ibrahim Sultan Iskandar, had issued a statement disparaging the Umno-led government as reported in the social media. Sultan Ibrahim had never written or spoken thus as reported in the social media, he said, adding that spreading such news was malicious. I was instructed by Tuanku Sultan to strongly dismiss the statement being circulated. I emphasise here that the sultan has never written or spoken thus. The act of spreading the libellous statement is of malicious intent, apparently to tarnish the good relationship between the Johor palace and the government, he told reporters after chairing the first meeting of the Green Technology and Climate Change Council here. Bernama Aviva Asia CEO leaving to helm Great Eastern SINGAPORE: Insurer Great Eastern Holdings has named industry veteran Khor Hock Seng as its new group chief executive officer (CEO), it said in a Singapore Exchange filing yesterday. Khor, 56, according to The Business Times report will take over on Nov 2 from Great Eastern s acting group CEO, Norman Ip, who will remain a director there. Khor will be moving over from rival insurer Aviva Asia. His departure from the Aviva group comes barely three months after it tapped Khor in mid-june 205 to be the new CEO of its freshly bought subsidiary, Friends Provident International. Wanita BN pledges full support for Najib KUALA LUMPUR: Wanita Barisan Nasional (BN) pledged its full support yesterday for the leadership of Prime Minister Datuk Seri Najib Razak, who is also BN chairman. As a party machinery which has always been close to the people, we know that the majority of the people at the grass roots are still supporting Najib. Hence, we are bringing the voice of the people and will continue to support the leadership of the prime minister, Wanita BN chief Datuk Seri Shahrizat Abdul Jalil told reporters after chairing the Wanita BN meeting at Menara Dato Onn here. Bernama Wanita Umno leader sacked from party KUALA LUMPUR: A Wanita Umno member who filed a suit against party president Datuk Seri Najib Razak and party executive secretary Datuk Ab Rauf Yusoh was sacked from the party yesterday. Anina Saadudin, who filed a suit against Najib last Friday to account for the chronology of events involving RM2.6 billion channelled into his personal bank accounts, is officially no longer the Langkawi Wanita Umno leader. The Malaysian Insider

4 WEDNESDAY SEPTEMBER 2, 205 DIGITALEDGE DAILY EVERYBODY IS CREATIVE

5 4 CORPORATE & MARKET WEDNESDAY SEPTEMBER 2, 205 DIGITALEDGE DAILY Moody s and Fitch warn of credit negative factors Political uncertainties could erode economic fundamentals BY AHMAD NAQIB IDRIS KUALA LUMPUR: Malaysia catches the attention of international ratings agencies again. Both Moody s Investors Service Inc and Fitch Ratings issued credit reports yesterday highlighting that political uncertainties could erode economic fundamentals. The latest reports by the duo swung share prices on Bursa Malaysia, besides dampening regional sentiment. The FBM KLCI leaped to a high of, points in the first trading hour, soaring 2.94% or points from last Friday s close. But strong selling emerged soon, pulling down the index to a low of, It closed at,609.2, down 3.53 points or 0.22%. Moody s, which has an A3 positive rating on Malaysia, said the continued political uncertainty could dampen business sentiment and economic growth. The agency forecasts gross domestic product growth to slow to 4.8% in 205 from 6% in 204. It noted that the weekend protests reflect the ongoing political uncertainty in the country, which it said could impact sentiment and capital inflows. This, in turn, is likely to chip away at reserves and the growth outlook, both of which have been buffering against market volatility but have trended downwards this year, a credit negative, it said in the report. The credit ratings agency said the country s large reserves and robust growth outlook, along with exchange rate flexibility and fiscal consolidation efforts, had offset the negative impact of market volatility on the sovereign credit profile. However, if business confidence and capital inflows continue to weaken, Moody s opined that this would gradually erode the support that reserves and growth have offered thus far. The pace of economic expansion will moderate as the GST (goods and services tax) and lacklustre sentiment curb consumption and investment, and lower oil prices push down liquefied natural gas prices with a lag, said Moody s. Meanwhile, Fitch Ratings, which has recently revised Malaysia s outlook to stable from negative, pointed out that the large demonstrations highlight the political volatility in Malaysia, but added that weak governance had already been factored in its A3 sovereign rating on the country. The recent political uncertainty in Malaysia falls in line with the country s relatively weak governance ranking. World Bank governance indicators place it in the 62nd percentile, well below the median for A rated countries, which is around the 75th percentile. Malaysia scores particularly poorly on the voice and accountability and political stability indicators within the governance rankings, said Fitch. However, the agency said weakening external accounts are a more pressing credit risk for Malaysia, noting the fall in foreign reserves to US$95 billion (RM395.2 billion) in mid-august and the ringgit s weakness against the US dollar. The agency noted reforms such as the introduction of the GST and the abolishment of fuel subsidies, but said further that fiscal measures are likely needed to achieve the government s long-term plan for a balanced budget by It would be [a] credit negative for Malaysia should the political volatility result in the government backtracking on these reforms. In the longer term, Fitch will continue to assess the credit impact both positive and negative of these economic policies, said the agency. Over at Bursa, Danny Wong, chief executive officer of Areca Capital Sdn Bhd, said the KLCI was dragged down by declines in banking stocks, and said the index s fall was in line with the lower close in US, European and Asian markets. The market was up earlier in the day following the Bersih [4] rally over the weekend, but there was some speculative selling of some of the banking stocks, which dragged down the index, he said. It was noted that banking stocks such as CIMB Group Holdings Bhd, Hong Leong Financial Group Bhd and RHB Capital Bhd posted declines during yesterday s session. Although the index found its bottom last week, the KLCI is still seen to be unstable. The direction of the KLCI, going forward, will still depend on the direction of oil prices and the ringgit, he said. Wong sees the immediate support level for the index at the,560 points level. In Asia, markets were broadly down, with Japan s Nikkei 225 declining 3.84% to 8,65.69, China s Shanghai Composite Index falling.23% to 3,66.62, Hong Kong s Hang Seng Index decreasing 2.24% to 2,85.43, and South Korea s Kospi settling.4% lower at, In Southeast Asia, Indonesia s Jakarta Composite Index fell 2.5% to 4,42.46; Singapore s Straits Times Index lost.32% to 2,882.77; and Thailand s SET declined.56% to Special Economic Committee sees growth despite issues troubling M sia BY RAM ANAND BY CHESTER TAY KUALA LUMPUR: TH Heavy Engineering Bhd yesterday announced the resignation of its non-independent and non-executive chairman Datuk Azizan Abd Rahman, citing conflict of interest as a reason. It has redesignated its director Datuk Ghazali Awang as non-independent and non-executive chairman to succeed Azizan. According to TH Heavy s website, Azizan, 65, was appointed chairman and a director of the company on June, Azizan started his career as a shipping executive at Harper Gilfillan (M) Sdn Bhd. He subsequently joined JF Apex Securities Bhd in 982 as an executive director and started his career in Abdul Wahid met with the other nine members of the committee in Putrajaya yesterday, and will have another meeting with them on Friday as they begin to formulate their action plan. The Edge file photo KUALA LUMPUR: Malaysia s growth in 205 will continue at between 4.5% and 5.5% despite several issues plaguing the country now, the newly set up Special Economic Committee (SEC) said in Putrajaya yesterday after meeting for the first time. The committee, which was set up by Prime Minister Datuk Seri Najib Razak in a bid to tackle concerns about the free fall of the ringgit and falling commodity prices, said that it would make the necessary proposals to the prime minister, who will have the final say on the proposals. But they refused to delve into specifics of the proposals they would be making. The committee s chairman, Datuk Seri Abdul Wahid Omar, met with the other nine members of the committee in Putrajaya yesterday, and will have another meeting with them on Friday as they begin to formulate their action plan. The meeting proceeded smoothly with a number of suggestions and recommendations, Abdul Wahid said during a press conference yesterday. Najib s younger brother, CIMB Group Holdings Bhd chairman Datuk Seri Nazir Razak, is also part of the committee. The committee discussed the value of the ringgit, the stability of the financial markets and strengthening confidence in the capital market. The ringgit is currently the worst performing currency in Asia, with the currency value hitting a 7-year low, drawing comparisons to the 997 Asian financial crisis. The committee has been tasked to formulate immediate and medium-term plans to strengthen the economy. The Malaysian Insider TH Heavy chairman Azizan resigns over conflict of interest the stockbroking industry. He was an active member of the stockbrokers fraternity and held the post of chairman of the Association of Stockbroking Companies of Malaysia from 994 to 995. He is currently chairman of Eastern & Oriental Bhd, Gefung Holdings Bhd and the investment panel of Lembaga Tabung Haji. In a filing with Bursa Malaysia yesterday, TH Heavy said Ghazali, 68, was appointed to TH Heavy s board of directors on Aug 27. Currently, Ghazali also sits on the board of CCM Duopharma Biotech Bhd as a senior independent non-executive director. TH Heavy shares appreciated.5 sen or 9.68% to close at 7 sen yesterday, with a market capitalisation of RM73.77 million. CCM shuts down fertiliser plant in Shah Alam, retrenches 230 staff BY CHESTER TAY KUALA LUMPUR: The prolonged downtrend in crude palm oil (CPO) prices has taken a heavy toll on Chemical Company of Malaysia Bhd (CCM), whom yesterday announced that it is shutting down its fertiliser plant in Shah Alam and retrenching 230 staff. In a statement yesterday, CCM cited the reason for the shutdown being oil palm planters opting for cheaper fertilisers due to the low edible oil prices. This resulted in poor demand for ammonium nitrate (AN)-based fertilisers that are produced by the plant in Shah Alam. CCM told Bursa Malaysia yesterday that the move is to mitigate risk associated with its business. We are extremely saddened by this situation, and the untenable business proposition left us [with] no choice but to resort to this option, the group said. The plant is owned by CCM Fertilizers Sdn Bhd, in which CCM holds a 50.% equity stake, while Lembaga Tabung Haji owns the remaining 49.9%. According to CCM, CCM Fertilizers posted a pre-tax loss of RM4.3 million in 204, mainly due to changes in market conditions driven by the decline in CPO prices. Like many commodity prices, CPO prices have been drifting lower from the height of RM4,000 per tonne in early 20 to a low of RM,800 last week. The edible oil price closed at RM,976 per tonne yesterday. In the statement, CCM said it would outsource its AN-based fertiliser manufacturing to a third-party manufacturer moving forward, and reiterated that there would be no change with respect to the availability of its Cock s Head brand products as manufacturing of the products would continue at its plants in Lahad Datu, Sabah and Bintulu, Sarawak. CCM expects the redundancy and asset impairment exercise will cost approximately RM30 million, and barring any unforeseen circumstances, the closure of the plant is expected to be completed by June 30, 206. The performance of its fertiliser division has dragged down CCM s earnings. Last week, CCM released its second quarter ended June 30, 205 (2QFY5) financial results which saw net profit shrinking 85% to RM33,000 from RM2.2 million a year ago. Revenue declined 25% to RM233.6 million in 2QFY5 from RM3. million a year ago. The group attributed the disappointing earnings to its fertiliser division.

6 WEDNESDAY SEPTEMBER 2, 205 DIGITALEDGE DAILY CORPORATE & MARKET 5 FGV mulls revising Indonesia deal terms To take into account issues discovered during due diligence KUALA LUMPUR: Felda Global Ventures Holdings Bhd (FGV), the world s biggest crude palm oil (CPO) producer, is considering seeking revised terms for its US$680 million (RM2.83 billion) deal to buy a stake in PT Eagle High Plantations, people with knowledge of the matter said. FGV may ask for a lower price to take into account issues discovered during due diligence on the Indonesian company, two of the people said, asking not to be identified as the information was private. The two companies reached a preliminary agreement in June and said they planned to announce a final pact by mid-august, a deadline that has since been extended to Oct 3. FGV said on Aug 4 it had substantially completed due diligence and was in the process of negotiating the terms of the definitive documentation. Eagle High s share price has fallen 42% since the initial deal was announced, while CPO s price has dropped 2% on concerns that slowing Chinese growth will hinder other emerging economies. The Indonesian company currently owns about 425,000ha of land, of which 52,000ha have been planted, according to a June filing. FGV said on June 2 it planned to buy a 37% stake in Eagle High from Indonesian conglomerate Rajawali Group for US$680 million in cash and shares. That implies an enterprise value of about US$7,400 per hectare of land, compared with the US$25,900 that Sime Darby Bhd paid GEORGE TOWN: The fire that razed several buildings of Poh Huat Resources Holdings Bhd s unit Poh Huat Furniture Industries Vietnam Joint- Stock Company (Poh Huat Vietnam) on Aug 23 has resulted in combined damage of US$2.4 million (RM9.98 million). The fire, which lasted from 3.20am till 0.5am the same day, occurred at two factory blocks housing a finishing line and a finished goods warehouse measuring about.05ha, Poh Huat Resources said in a filing with Bursa Malaysia yesterday. Listing its damages, Poh Huat Refor New Britain Palm Oil Ltd in March, FGV chief executive officer Datuk Mohd Emir Mavani Abdullah said in a July interview. FGV said in an ed statement that the deal was still in process for the time being and the final report on due diligence would be announced at the company s upcoming shareholders meeting. Darjoto Setyawan, managing director of Rajawali Group, didn t answer an and call to his mobile phone seeking comment. FGV, which manages 450,000ha of land in Malaysia and Indonesia, has lost nearly three quarters of its market value since its June 202 initial public offering. Its second-quarter net income fell 70% to RM46. million due to lower sale prices of its CPO. Bloomberg Mueller flashing a thumbs up sign at the pilot as the Malaysia Airlines aircraft was moved back from the parking bay at KLIA on Monday. New Malaysia Airlines takes off KUALA LUMPUR: The national carrier yesterday embarked on its new journey as Malaysia Airlines Bhd (MAB), with its chief executive officer Christoph Mueller and senior management holding a special walkabout at the KL International Airport in Sepang on Monday and yesterday, to meet and greet passengers on its flights. The new airline also announced the appointment of Proteek Sengupta as its interim head of revenue management, replacing Shihaj Abdulla Kutty who is leaving the airline. Proteek will lead the efforts to improve the revenue efficiency and network design for MAB. Naza on track to deliver RM556m mega expo centre in 2Q6 Poh Huat's Vietnam fire causes US$2.4m losses BY SANGEETHA AMARTHALINGAM sources said the total net book value of the damaged factory buildings, ancillary structures and installation was US$43,528. The total net book value of the damaged plant and machinery comprising spraying line pallets, tow-conveyor system, woodworking machinery, firefighting system, electrical installations and racking systems is US$283,667. The total net book value of workin-progress furniture parts, finishing materials and finished goods damaged by the fire is approximately US$.65 million, said the group. Poh Huat Resources (fundamental: 2.; valuation: 2.4) said it had put in place production shifts from one single 2-hour shift to two 0-hour shifts to mitigate the interruption caused by the fire. The group said its Vietnam unit was working with the insurer and adjusters for the insurance compensation for the losses from the fire. The insurance proceeds, upon receipt, will be utilised to offset the relevant reconstruction and repair costs and assets impairment charges arising from the damaged fixed assets and stocks, Poh Huat Resources added. Its shares rose two sen or 0.79% to close at RM2.56 yesterday, for a market capitalisation of RM27.08 million. KUALA LUMPUR: Naza TTDI Sdn Bhd, a unit of the Naza Group, said the RM556 million Malaysia International Trade and Exhibition Centre (Mitec), the country s largest exhibition space, is on track to be delivered to the government in the second quarter of 206. Naza TTDI deputy executive chairman and group managing director SM Faliq SM Nasimuddin said despite the challenges faced in the construction of the exhibition centre, it is now 80% completed. Work is now ongoing to complete the roof, façade and interior works. Apart from that, the infrastructure of the exhibition centre is ongoing and scheduled for completion at the same time," he said in a statement yesterday. Mitec is the first component of Naza TTDI s 30.55ha RM5 billion KL Metropolis development at Jalan Duta here. The exhibition centre will have a gross floor area of one million sq ft with a total of exhibition halls. It will also contain a multipurpose hall, meeting and conference rooms, media and press facilities, VIP lounges, restaurants, and food outlets. The exhibition centre will be able to accommodate 40,000 visitors at a time. Apart from the exhibition centre, the KL Metropolis features offices, hotels, regional retail centres and residences. The project had raised concerns after Naza TTDI secured the building-for-land deal from the government, which allowed it to buy the prime land and surrounding parcels for only RM620 million or RM226 per sq ft in 2009.

7 6 CORPORATE & MARKET WEDNESDAY SEPTEMBER 2, 205 DIGITALEDGE DAILY 2 submit proposals to bid for Bandar Malaysia project WTW will review and provide its recommendation to MDB Real Estate BY YIMIE YONG KUALA LUMPUR: Twelve companies have submitted proposals for the final stage of evaluation to participate as development partners in the 486-acre (96.67ha) Bandar Malaysia project in Sungai Besi. In a statement yesterday, CH Williams Talhar and Wong (WTW), the transaction adviser for the Bandar Malaysia request for proposal (RFP), announced that upon the close of bidding on Aug 28, 2 companies had submitted their proposals. We have received highly competitive responses above and beyond our expectations. The 2 final stage bidders comprise domestic private developers, government-linked companies and foreign parties either submitting independently or as a consortium, said WTW deputy managing director Danny Yeo. LBS Bina plans special dividend after China asset sale payment BY CHESTER TAY KUALA LUMPUR: LBS Bina Group Bhd has earmarked 40% of a HK$200 million (RM08 million) part payment as special dividend. In a filing with Bursa Malaysia yesterday, LBS said the HK$80 million would finance the special dividend within five months. The HK$200 million part payment forms a portion of the HK$.65 billion LBS will receive from the sale of its 00% stakes in Lamdeal Consolidated Development Ltd and Lamdeal Golf & Country Club Ltd to Zhuhai Holdings Investment Group Ltd. The board is pleased to announce that the company has today (yesterday) received the second tranche of deferred cash payment of HK$200 million, early by four months from the due date, it said. The board applauded the early payment as it enables the group to reduce its cost of borrowings thus contributing positively to the cash flow and earnings of the group for the financial year ending Dec 3, 205, LBS said. Besides the special dividend, LBS said it will use the HK$200 million to reduce bank borrowings and finance operating expenses. WTW will now review the proposals and provide its recommendation to MDB Real Estate Sdn Bhd (MDB RE), which will then shortlist selected final bidders before entering into financial and share sale agreement negotiations. WTW said the earlier expression of interest stage saw robust interest from 40 local and global players, including Singapore, China, Japan, South Korea and Australia. The bidders received an investment memorandum outlining Bandar Malaysia s development vision and its proposed master plan. To progress to this final selection stage, these companies had to showcase their track record, branding and financial capabilities to be a development partner for Bandar Malaysia. The commercialisation of Bandar Malaysia is part of a rationalisation plan for heavily-indebted Malaysia Development Bhd MWE Holdings' Vietnam unit to generate US$40m revenue in FY7 BY SANGEETHA AMARTHALINGAM NIBONG TEBAL (Penang): MWE Holdings Bhd s wholly-owned subsidiary United Sweethearts Garment Sdn Bhd (USG) expects to contribute about US$40 million (RM66.4 million) to group revenue from the next financial year ending March 3, 207 (FY7) upon the completion of its expansion plan in Vietnam. The number of production lines will increase to 42 from 26 currently in Dong Nai Province, southern Vietnam. USG managing director Tang Chong Chin said with more production lines, the subsidiary targets 60% revenue growth for FY7. With the increase in production lines in our Vietnam plant (United Sweethearts Garment (Vietnam) Co TMC Life Sciences appoints new chief executive officer BY SUPRIYA SURENDRAN KUALA LUMPUR: TMC Life Sciences Bhd has appointed Roy Quek Hong Sheng as its chief executive officer (CEO) effective today. In a filing with Bursa Malaysia yesterday, TMC said Quek, 45, a Singaporean, had served as the deputy secretary of operations and Yeo: We have received highly competitive responses above and beyond our expectations. Photo by Haris Hassan development of the Ministry of Home Affairs, Singapore since 203. He joined the board of directors of TMC on June 2 this year as an executive director (ED). The group added that Dr Wong Chiang Yin, 47, who had been an ED of TMC since January 20, has been redesignated to the post of non-independent and non-ed. (MDB) that was presented to the Cabinet on May 29. Meanwhile, MDB said it is encouraged by the high quality of bids received, and is confident of the success of the process. It is our plan to shortlist selected final bidders, enter detailed negotiations and execute a binding transaction by the end of 205, said MDB RE chief executive officer Datuk Azmar Talib in the statement. He further emphasised that in making a final decision, the board of directors of MDB will be guided by, among other things, value maximisation to MDB s shareholders, deal certainty, and terms that are fair and reasonable. Bandar Malaysia will be a mixed-use urban development that is expected to serve as a catalyst for the transformation of Greater Kuala Lumpur. Located within 7km of the Kuala Lumpur City Centre, the development will serve as Kuala Lumpur s gateway to the high-speed rail line to Singapore and become a central transport hub in the city via mass rapid transit, KTM Komuter, express rail link and future access to major highway networks. Ltd), our total lines will amount to 00, including 58 in Malaysia, he told reporters after MWE Holdings annual general meeting yesterday. We will be able to cater to higher demand in the United States and European markets. We hope to increase our market share in Europe with the additional production lines, he said, adding that its capital expenditure amounted to US$6 million. Tang said the plant expansion of its Vietnam unit, established in 2002, would be completed in the middle of next year, hence the expectation of revenue contribution in FY7. He added that the garment manufacturing sector contributes about 70% of MWE Holdings revenue, while the rest is derived from its telecommunications segment. For its first financial quarter ended June 30, 205 (QFY6), the group recorded a net profit of RM6.75 million on a revenue of RM84.8 million. MWE Holdings (fundamental: 0.65; valuation: 2) shares closed unchanged at RM.20 yesterday, with a market capitalisation of RM276.3 million. The Edge Research's fundamental score reflects a company s profitability and balance sheet strength, calculated based on historical numbers. The valuation score determines if a stock is attractively valued or not, also based on historical numbers. A score of 3 suggests strong fundamentals and attractive valuations. Go to for more details on a company's financial dashboard. Wong, also a Singaporean, was formerly an ED of Pantai Holdings Bhd from May 2008 to May 2009 and was the interim CEO of Bright Vision Hospital in Singapore from March 200 to December 200. TMC, which is controlled by Singapore businessman Peter Lim Eng Hock with a 70.5% stake, operates the Tropicana Medical Govt to re-strategise to achieve 3.2% fiscal deficit KUALA LUMPUR: The government needs to relook at and re-strategise its resources in order to achieve a 3.2% fiscal deficit set for this year, Deputy Finance Minister Datuk Johari Abdul Ghani said. There s no more business as usual because we have limited resources [due to slumping oil prices], while our exports are affected, he said. In the first half of 205, the country s fiscal deficit narrowed to 2.8%. So, what we need to do now is for the government to have a relook at its income [from Petronas and other oil and gas companies]. And try to maximise with an option of how best to spend our limited resources and sail through this economic [uncertainty], he told a press conference after officiating at the CFO Summit 205, organised by the Asian Strategy and Leadership Institute, here yesterday. He said the country recorded a gross domestic product growth of 5.6% in the first quarter of this year and 4.9% in the second quarter amid external challenges. With the unstable ringgit, Johari encouraged industry players to use local raw materials to tide over current economic conditions unlike in good times, when they used to import raw materials from China, which were cheaper then. But now, it is high time that we looked at the industry needs where they (the raw materials) can be substituted with local materials, he said. Johari cautioned those with a penchant for converting the ringgit to the greenback. Imagine the impact on the country when everyone started converting the ringgit to the US dollar, unless they have a purpose to use it, such as buying raw materials, he added. Bernama Correction REFERRING to the article titled Aeon 2Q earnings down 66.6% that was published in digitaledge DAILY on Aug 28, it has been pointed out that Aeon Co (M) Bhd does not operate the Aeon Big hypermarkets and supermarkets in Malaysia. The latter comes under Aeon Big (M) Sdn Bhd. The error is regretted. Centre in Kota Damansara, as well as the TMC Fertility Centre in Damansara Utama, both in Petaling Jaya. The stock has gained some investor interest of late when Johor crown prince Tunku Ismail Sultan Ibrahim emerged as a substantial shareholder of the company in July this year, with a 7.68% stake.

8 WEDNESDAY SEPTEMBER 2, 205 DIGITALEDGE DAILY CORPORATE & MARKET 7 Malaysian factory activity falls as China weakens Fears of sharper slowdown in the world s second-largest economy Nikkei BY AHMAD NAQIB IDRIS KUALA LUMPUR: The Nikkei Malaysia Manufacturing Purchasing Managers Index (PMI) dropped to 47.2 in August 205, from 47.7 a month earlier, indicating the strongest deterioration in operating conditions in nearly three years. In a statement yesterday, Nikkei Inc said Malaysian manufacturers contended with less orders and costlier production inputs in August. New orders contracted at BY YIMIE YONG the fastest rate since September 202, leading to further sharp falls in both production and purchasing activities. Subsequently, employment decreased for the third straight month, albeit at a weaker rate. Cost pressures persisted, as input prices rose at the quickest rate since November 203, consequently leading to higher charges, said Nikkei. Nikkei said input price inflation was the strongest since November 203, attributed to higher taxes and the depreciation of the ringgit against the US dollar. A weaker ringgit resulted in costlier raw materials for manufacturers here, according to Nikkei. The Nikkei Malaysia Manufacturing PMI is a composite single-figure indicator of manufacturing performance. Data is derived from indicators for new orders, output, employment, suppliers delivery times and purchases. A figure greater than 50 indicates improvement of the manufacturing sector. Malaysia s August factory activity fell in tandem with China s manufacturing sector. Yesterday, Reuters reported an official survey as saying that activity in China s manufacturing sector contracted at its fastest pace in three years in August, reinforcing fears of a sharper slowdown in the world s second-largest economy, despite a flurry of government support measures. China s official PMI fell to 49.7 in August, from the previous month s reading of 50.0, in line with expectations of analysts polled by Reuters. SEA s top 00 increase debt sixfold since 98 crisis SINGAPORE: Southeast Asia s biggest companies have increased debt sixfold since the regional financial crisis, stoking concern about default risks as investors draw parallels with the 998 meltdown. The region s 00 largest listed companies by assets, including Thailand s CP All Pcl, Petron Corp of the Philippines and Singapore s Wilmar International Ltd, had accumulated US$392 billion (RM.63 trillion) by June 30, data compiled by Bloomberg show. That s up six times from December 998. Debt loads as a proportion of assets are climbing back near levels from the crisis at 3.7%, up from 29.5% in 200. Slowing regional growth, China s yuan devaluation and the outlook for higher US interest rates sparked a sell-off in Southeast Asia that sent the ringgit and the rupiah to their lowest levels since 998. Default risk in Asia outside Japan posted the sharpest jump in 205 last month, bonds lost the most in two years, and shares suffered their worst slide since 20. Companies still clearly have their feet on the expansion throttle, they show no signs of slowing down just yet at a time when the road is becoming more bendy, said Bertrand Jabouley, director of Asia-Pacific corporate ratings in Singapore at Standard & Poor s (S&P). Currency depreciations are the bitter icing on the cake and they come at a time when debt-funded expansion has weakened corporate balance sheets. S&P said foreign-currency debts grew two to three times more rapidly than local debt for Malaysian, Philippine and Indonesian companies between 200 and 204, based on its own sample of the top 00 companies. The borrowings made up 30% to 50% of total debt there, it said. Credit quality has been declining in the region and that s a worrisome trend, according to Kim Jinha, the head of global fixed income in Seoul at Mirae Asset Global Investments Co. We won t see any meaningful reversals until the global economy picks up again, Kim said. The default rate will increase, likely at a moderate pace. Highly indebted corporates will suffer from further US dollar strength. Total obligations at Wilmar, which grows oil palms, doubled to US$22.4 billion since 200, while net debt rose 20%. The jump was partly due to its expansion into the sugar industry, the company said in an on Monday, adding that revenue rose 42% over that time. CP All, which operates 7-Eleven stores in Thailand, generated US$.3 in earnings before interest and taxes for every US$ of interest expense, slipping from 5-to- coverage in 203, Bloomberg data show. Samrej Zeepongsekul, an officer at the corporate communications division of the company, said in an that the increase in liabilities was due to the debt-financed acquisition of Siam Makro PCL in 203. He said the funding was in local currency so the baht drop wouldn t have an impact. Fuel retailer Petron s debt-toearnings before interest, taxes, depreciation and amortisation ratio expanded to 0.6 times from 5.4 in 200. Petron didn t immediately reply to s seeking comments and a call to the number on its website went unanswered. Southeast Asia s biggest economies are grappling with slumping demand from China as growth in gross domestic product there cools to the least since 990. Indonesia expanded at the slowest pace since 2009, while Singapore s economy shrank the most since 202 in the second quarter. Half of the emerging markets are in a worse shape than they were in 995, based on a combination of current account and fiscal deficits, according to Citigroup Inc. While governments have cut foreign debt, companies have expanded theirs, the bank said in a report on Sunday. While the yuan devaluation last month by the People s Bank of China caught the market by surprise, investors still have confidence in the central bank s steps and that has contained volatility, according to Leong Wai Hoong, a senior money manager in Singapore at Nikko Asset Management Co Ltd, which manages about US$62 billion. It is the spillover effects to other currency pairs or asset classes that people are worried about, Leong said. The MSCI South East Asia Index of shares in the region fell % since July 3, the biggest monthly decline since September 20. The ringgit depreciated 7.8% while the rupiah lost 3.7%. The baht slid to a six-year low. Credit-default swaps protecting Indonesian government debt have risen every month since February and reached basis points (bps) last Thursday, near a two-year high, according to data provider CMA. The contract on Malaysia hit a four-year high of on the same day. The index for all of Asia excluding Japan jumped 22 bps in August, the sharpest increase since January 204. The signs of stress in the region s credit markets add to worldwide concerns, after 7 bond defaults globally this year through Sunday compared with 60 in all of 204, according to S&P. Emerging-market companies have accounted for 4, versus 5 in all of last year. PT Berau Coal Energy Tbk made a distressed exchange for US$950 million of dollar bonds in July. The major test for financial discipline will be in the second half 205 and even more in 206, said S&P s Jabouley. Refinancing, especially with sizeable bond maturities in 207, could be the iceberg waiting for the ship that cruises too rapidly. Bloomberg Ahmad Fariz is acting CEO of Kumpulan Perangsang Selangor KUALA LUMPUR: Kumpulan Perangsang Selangor Bhd (KPS) has appointed Ahmad Fariz Hassan as its acting chief executive officer (CEO) effective yesterday, following the resignation of Suhaimi Kamaralzaman as the group CEO and managing director on the same day. In a filing with Bursa Malaysia yesterday, KPS said Ahmad Fariz, 38, is currently the head of strategic planning and investment of KPS. He previously served as senior vice-president at Khazanah Nasional Bhd between January and March 205 before joining KPS on April 4, 205. In a separate filing, KPS said Suhaimi has been redesignated as non-executive director of the company. Suhaimi, 47, was the group CEO and managing director since May 0, 20. Prior to this, he was the CEO and managing director of Melewar Industrial Group Bhd. Mohd Azharuddin s appointment as CEO was with immediate effect according to a statement. Photo by Suhaimi Yusuf Mohd Azharuddin Mat Sah is new chief of SPAD BY SUPRIYA SURENDRAN KUALA LUMPUR: The Land Public Transport Commission, Malaysia (SPAD) has appointed Mohd Azharuddin Mat Sah as its chief executive officer (CEO), replacing Mohd Nur Ismal Mohamed Kamal who will join the Finance Ministry s wholly-owned unit MyHSR Corp Sdn Bhd, as its CEO to oversee the Kuala Lumpur-Singapore high-speed rail link project. In a statement yesterday, SPAD said Mohd Azharuddin s appointment as its CEO was with immediate effect. Prior to his appointment, Mohd Azharuddin was director of urban public transport for Greater Kuala Lumpur/Klang Valley at the Performance Management and Delivery Unit in the Prime Minister s Department. He had also held various key positions, such as in Microsoft Malaysia, where he was the director of public sector group for Malaysia, and Khazanah Nasional Bhd, where he was the senior vice-president of special projects. Mohd Azharuddin was also attached with Royal Dutch Shell plc, having undertaken assignments in both Malaysia and its corporate headquarters in London. In his new role, Mohd Azharuddin s immediate responsibilities include accelerating the growth of a viable Land Public Transport (LPT) ecosystem as envisaged in the National Land Public Transport Master Plan. SPAD chairman Tan Sri Dr Syed Hamid Jaafar Albar said Mohd Azharuddin s strong credentials and extensive experience in the LPT sector makes him the right leader for SPAD, as the commission gears up to drive more people centric mobility and connectivity. I look forward to working closely with [Mohd] Azharuddin to build seamless multimodal integration to make public transport as the mode of choice for all Malaysians. The commission would like to put on record its sincerest appreciation to Mohd Nur Ismal for his dedication and contributions in his five years as the CEO of SPAD, said Syed Hamid.

9 8 CORPORATE & MARKET WEDNESDAY SEPTEMBER 2, 205 DIGITALEDGE DAILY Balancing work and life as a team Astro Last year s The Edge Kuala Lumpur Rat Race proved to be a turning point for Measat Broadcast Network Systems Sdn Bhd one of its teams emerged as second runner-up in the mixed team category. This year, Astro, which has been taking part in the annual event since 200, aims to do better. The official television and radio sponsor of The Edge Kuala Lumpur Rat Race 205 has carried out a rigorous selection exercise over two days to pick 30 runners for this year s race. Astro, which is fielding six teams, selected the runners based on their fastest time clocked. The selected runners have been training on Astro s Bukit Jalil office grounds twice a week for the past three months. Astro Content Group associate Ezzad Ekhwan says although he is not based in Bukit Jalil, he always attends the training sessions, which are held every Tuesday and Thursday. On weekends, I put in additional training by going for evening runs. I want to be fit and ready for the race, he says. Astro Technology associate Neo Say Soon says last year s podium fin- Rehda Youth The Real Estate and Housing Developers Association Youth Malaysia (Rehda Youth) is sending five of its members to take part in the Rat Race this year. From golf to diving to road pounding and white water rafting, we are a diverse group of individuals with diverse interests but we always manage to find common ground in our approach to balancing work and life, says a member of the team. Team activities are a great way to foster new friendships outside of the workplace and allow us to get a good workout as well, he adds. While the team will be participating for the first time in The Edge Kuala Lumpur Rat Race 205, Rehda Youth has taken part in other runs such as the Pacesetters Mizuno Relay in 202, Kenny Rogers Roasters Chicken Run in 202 and Standard Chartered Ediken Relay Run in 203. PwC Malaysia PwC Malaysia s team captain Sim Li Hong is no stranger to The Edge Kuala Lumpur Rat Race as she will be running in it for the third year. In preparation for the race, the audit firm s senior executive trains with her colleagues and goes through a mixture of workouts, including stair climbing, speed work and endurance. Stair climbing is part of PwC s recent health campaign (#FitPwC), where we have a weekly session of stair climbing in our office building, Sim said, adding that the Rat Race allows her to get acquainted with more of her colleagues and gives her the opportunity to meet other runners in the corporate world based on her previous experiences. For executive director Manohar Johnson, running in the CEO cateish was a surprise for the team as it was a tough competition. It was a great feeling going up the podium to receive our medals, especially after all the hard work we had put in, he says. Team Astro believes that the Rat Race is a good way to get corporate Malaysia to take part in charity activities. Astro chief technology officer Phuah Aik Chong, who will be taking part in the CEO run, says he is looking forward to the event as his last race was three years ago. Knowing that it is a run for charity gives me extra motivation, and I aim to do well. He says on Astro s part, it set up After a hard day s run, a good breakfast makes for an even more memorable experience. A great soundtrack and the promise of a great breakfast or supper is what charges them up during a workout. The team is organising runs in the early morning and after work twice a week. Rehda Youth says it would like to gory is an ideal way to inculcate the attributes of a caring society through corporate leaders. Taking part in his second Rat Race, Manohar believes that it is for a worthy cause as the race seeks to promote English and financial literacy, although he feels that there is always pressure to exceed expectations at PwC in representing the company in the race. Yayasan Astro Kasih, a non-profit organisation, in 202 to carry out its corporate responsibility programmes. Through Kampus Astro, one of our corporate responsibility programmes, millions of students can get access to local and international learning channels, says Phuah. As for community development programmes, the company has built three Astro Kasih hostels one each for Sekolah Kebangsaan Magandai and Sekolah Kebangsaan Malinsau in Sabah, and Sekolah Kebangsaan Sungai Paku in Sarawak. Efforts are also being made to help the pupils improve their academic performance. see more sustainable initiatives for the long run. Rehda Youth s own CSR initiatives are conceived around the idea of providing those less fortunate with a safe and nurturing environment to help themselves. Our contributions go to facilities, education and donations to homes, irrespective of race and religion, it adds. On PwC Malaysia s corporate social responsibility activities, Manohar said the company focuses on education and capacity building. We have four flagship programmes, which consist of Community Outreach Programme, Health and Wellness (#Fit- PwC), NGO Workshop and Diversity and Inclusion. In addition, we invest in mentoring programme (Polaris) and Teach for Malaysia Flipped. The Edge Kuala Lumpur Rat Race 205 collection (as at Aug 28, 205) COMPANY NAME AMOUNT (RM) TOTAL TEAMS Aberdeen Asset Management Sdn Bhd 8, Affin Hwang Asset Management Bhd * 66, Amundi Malaysia Sdn Bhd 8, Axis REIT Managers Bhd 8, BCG Sdn Bhd 8, BHIC Aeroservices Sdn Bhd 8, CIMB Investment Bank Bhd 32, Citibank Bhd 8, Credit Suisse Securities (Malaysia) Sdn Bhd 8, Deloitte 8, DKSH Malaysia Sdn Bhd 8, Eco World Development Group Bhd * 66, EY Malaysia 8, Feruni Ceramiche Sdn Bhd ** 44, Fraser & Neave (Malaya) Sdn Bhd 32, Gamuda 32, Genting Malaysia Bhd 8, Glomac Bhd 8, Hartalega Sdn Bhd 8, IOI Group 32, Ireka Corp Bhd 8, K&N Kenanga Holdings Bhd 8, Khazanah Nasional Bhd 8, KNM Group Bhd 32, KPMG 8, Lafarge Malaysia Bhd 32, Land & General Bhd **** 8, Matrix Concepts Holdings Bhd ** 44, Maxis Bhd 8, Maybank 54, MEASAT Broadcast Network Systems Sdn Bhd 8, Merchantrade Asia Sdn Bhd 32, Microlink Solutions Bhd 8, MKH Bhd 8, Naza TTDI Sdn Bhd 32, Nestlé Products Sdn Bhd 8, PricewaterhouseCoopers (PWC) Malaysia 8, REDHA Youth 8, RHB Banking Group 44, S P Setia Bhd 32, Tanjong Management Services Sdn Bhd 8, The Edge Communications Sdn Bhd 44, Top Glove Corp Bhd 8, Trinity Group Sdn Bhd 8, Tropicana Corp Bhd 8, UDA Holdings Bhd 8, Vistage Malaysia Sdn Bhd *** 32, WCT Holdings Bhd 8, Total,240, * Part of Powered by and Partnered by ** Part of Gold Sponsorship Package *** Part of Silver Sponsorship Package **** Part of Bronze Sponsorship Package UDA Holdings UDA Holdings Bhd will be participating in The Edge Kuala Lumpur Rat Race 205 for the third time. It will be sending a team to take part in the open category, while UDA Leisure and Facility Management group chief operating officer Julainie Mohd Salleh and Human Resource senior vice-president Hishamuddin Mon will participate in the CEO Race. The members of the team believe it is a good platform for companies to do charity and contribute to the community, while enhancing brand awareness. Running for charity continues to be a great way to raise funds and awareness of charities. Anyone of any ability can run for charity a little grit and determination will take you a long way, says a team member. While other companies may be more serious about clinching the top spot in the various categories, Julainie says UDA s participation is more towards the charity part of the programme rather than competitive running. There is no pressure for the run. It is also a great chance to catch up with fellow corporate friends and meet new people, he adds. It is good to see the bosses sweating it out for charity. Team spirit rises to a different level seeing the leaders making a dash for it. He says UDA has been actively involved in CSR efforts as part of its transformation. In 204, the company developed a pilot CSR programme, STRUCTURA, together with the finance ministry. The programme is an architectural design competition among local private and public universities in Malaysia. UDA is looking at continuing the programme based on the response it has received from the ministry as well as the universities.

10 WEDNESDAY SEPTEMBER 2, 205 DIGITALEDGE DAILY PROPERTY SNAPSH T 9 What are developments priced in Puchong? Today, we continue our focus on Puchong by looking at average prices on a per square foot (psf) basis. Based on transactions analysed by theedgeproperty.com, the average price of non-landed properties here was a reasonable RM334 psf in 3Q204, up 0.6% y-y. Data analysed by theedgeproperty.com show that prices in Puchong are much lower than the more established nearby townships such as Subang Jaya (RM58 psf in 3Q204) and USJ (RM4 psf). In the 2 months to 3Q204, 55.8% of transactions were in the RM20- RM400 psf range, followed by the RM40-RM600 psf range (2.8%). The most expensive addresses in the area of study is Solace with an average price of RM563 psf. Most of the other expensive projects are all fairly new, with the exception of La Vista (RM390 psf), Desa Impiana (RM390 psf) and Casa Puteri (RM399 psf). Among the list, the buyers would find larger unit sizes at Aseana Puteri (RM456 psf), Atmosfera (RM42 psf), La Vista (RM390 psf) and Koi Kinrara Suites (RM390 psf) where the 3-bedroom units have sizes starting from,300 sq ft. Within the list, Casa Tropika (RM405 psf) appears reasonably priced. Completed in 204, it offers many additional facilities including a sky deck, and sits atop a retail podium beneath the residential towers. The least expensive developments are found clustered in Puchong Utama and Taman Mas Sepang. Interestingly, the lower-cost developments are often situated right next to other medium-cost apartments, a pattern of development observed when a neighbourhood undergoes gentrification. The Analytics are based on the data available at the date of publication and may be subject to further revision as and when more data is made available to us. Puchong Top 0 most expensive condominiums/apartments by average price per square foot Puchong Top 0 least expensive condominiums/apartments by average price per square foot For more of such information across Malaysia and Singapore, log on to the theedgeproperty.com. The one-stop portal for all your property needs, theedgeproperty.com offers price and transaction records, trend analysis, research classifieds, and more all for FREE! Source: theedgeproperty.com Source: theedgeproperty.com An artist s impression of LBS Bina s SkyVilla project. LBS Bina confident of hitting RM800m sales target BY ZATIL HUSNA WAN FAUZI KUALA LUMPUR: Property developer LBS Bina Group Bhd is confident of hitting its RM800 million sales target for the current financial year ending Dec 3, 205 (FY5). Despite the current sentiment, we are confident of achieving at least RM800 million sales by end of this year, which is an increase of 25% over last year s total sales. We have set our direction for aggressive growth expansion which is geared to meet the Malaysian housing market demands, its managing director Tan Sri Lim Hock San said in a statement. Our management and board of directors continue to strive to adapt... to suit the domestic market, and we have identified the right strategic locations and type of housing range to meet various demands, he said. We are very pleased with the performance results of RM59 million, which represent a 27% increase in sales from RM464 million for the same period last year. Some 77% of the total sales were contributed mainly by the Klang Valley projects, said Lim. The group is anticipating good response from its key contributor projects, namely Bandar Saujana Putra in Kajang, D Island Residence in Puchong and Bandar Putra Indah in Johor. Lim said the group will continue to focus on the main key sales contributors such as Ivory Garden and Magma Garden in Bandar Putera Indah, Corallia and SkyVilla in D Island Residences, Bandar Saujana Putra Village and Bandar Saujana Putra 2, which have a total gross development value (GDV) of RM.4 billion. The group is fine-tuning its plans for the 2,78 acres (,099.9ha) in its land bank, which has an estimated future GDV of RM2.7 billion, added Lim. LBS Bina held its extraordinary general meeting on Aug 26 to approve the issuance of warrant B with the purpose of rewarding its existing shareholders. China home prices seen rising modestly this year thanks to support measures BY XIAOYI SHAO & KOH GUI QING BEIJING: Chinese home prices are expected to rise modestly this year thanks to government support measures for the sector, relieving some pressure on the faltering economy, a Reuters poll showed last Wednesday. Home prices are likely to rise 2% in 205 from a year earlier, and 3% in 206, according to the median of the poll, which surveyed 4 economists and property market analysts from Aug 8 to 25. Signs of stability in the property sector could ease fears of a sharper slowdown in China s economy, which is heading towards its weakest rate of expansion in 25 years due to a combination of cooling demand at home and abroad. But pickups in home prices and sales are unlikely to turn into a full-blown recovery for the sector any time soon, as large inventories of unsold homes weigh on the market and discourage new investment and construction, dampening demand for everything from cement and steel to furniture and appliances. Property sales bottomed out during the first half of 205 after declining for more than a year, propped up by a barrage of government support measures since last September, including a series of interest rate cuts and lower downpayment requirements. China cut rates again last Tuesday and lowered the amount of reserves banks must hold, ratcheting up support for the stumbling economy and a plunging stock market. Home prices rose 0.3% in July from June, the third straight month of gains, though they were still down 3.7% from a year earlier, official data showed last week. Favourable credit policies have released pent-up demand and driven up home prices. We expect home transactions in 205 to surpass last year s volume, said Jason Hu, head of research at Chinese property consultant Holdways in Beijing. While 0 of 4 respondents in the poll expected no broad recovery in the property market this year, eight of 3 expect home transactions to keep improving in the coming month. Not everyone replied to each question. Property sales bottomed out during the first half of 205 after declining for more than a year, propped up by a barrage of government support measures since last September. Loosening monetary policy and favourable supervision measures have greatly reduced the costs of buying homes. The sustained owner-occupier demand will support the market to recover, said Xu Gao, chief economists at Everbright Securities Co Ltd in Beijing. Six of 3 respondents thought authorities would take more steps to lift the market, while the rest believed they would not step in. Given China s property market is diverging between cities in terms of performance, analysts thought bigger cities would see sharp price rises this year due to strong housing demand. Respondents said China s property markets are overvalued, a view unchanged since January 202 when Reuters started the poll. Reuters

11 0 STOCKS WITH MOMENTUM WEDNESDAY SEPTEMBER 2, 205 DIGITALEDGE DAILY This column is an analysis done by Asia Analytica Sdn Bhd on the fundamentals of stocks with momentum that were picked up using proprietary algorithm by Anticipatory Analytics Sdn Bhd and that first appeared at Please exercise your own judgment or seek professional advice for your specific investment needs. We are not responsible for your investment decisions. Our shareholders, directors and employees may have positions in any of the stocks mentioned. HEVEABOARD BHD (+ve) HEVEABOARD (Fundamental: 2./3, Valuation:.4/3) triggered our momentum alert yesterday, following announcement of its 2Q205 earnings results and dividend payment. The stock rose to an intra-day high of 98 sen before closing unchanged at 94 sen. Nevertheless, it has risen by 3.0% year-to-date. For H205, net profit nearly doubled to RM30.0 million on the back of a 7.6% growth in revenue to RM227.8 million, thanks to higher average selling price for premium grade particleboard and value added products as well as forex gain. Concurrently, Heveaboard declared a first interim dividend of 0.5 sen per share, which will go ex on September. With the completion of its 4-for- share split on July 24, the company now has 47.4 million shares outstanding with par value of 25 sen each. Heveaboard s warrants were also entitled to a 4-for- split and the exercise price has been adjusted down accordingly to RM0.25, from RM.00. Negeri Sembilan-based HeveaBoard manufactures and trades particleboards and ready-to-assemble furniture, which accounted for 43.0% and 57.0% of its 204 revenue, respectively. In 204, Heveaboard derived 9.6% of its sales from exports markets, mainly Japan, China, Korea, Philippines and Australia. Despite the furniture industry s cyclicality, Heveaboard has been profitable with fairly consistent earnings in recent years, except for a large dip in 20 due to the weak US dollar then. From 20 to 204, revenue has grown from RM373.0 million to RM422.4 million, while net profit expanded from RM3.3 million to RM30.2 million. Notably, the company has pared down its long term borrowings to RM32.6 million at end- June, from RM4.7 million in 200. As a result, net gearing fell to 4.2%, from 86.6% in 200. The stock trades at a trailing 2-month P/E of 0.5 times and.38 times book. Dividends totalled sen per share for 204 (adjusted for share split), giving a net yield of.%. HEVEABOARD BHD (ALL FIGURES IN MYR MIL) FY 3/2/20 FY2 3/2/202 FY3 3/2/203 FY205Q 3/3/205 Income Statement Turnover EBITDA Depreciation EBIT Associates Interest income Interest expense Extraordinary gain/(loss) Pre-tax profit Net profit - owners of company Balance sheet Fixed assets - PPE Biological assets Intangibles & goodwill Cash and equivalents Total current assets ST borrowings Total current liabilities Total assets Shareholders' fund Long term borrowings HEVEABOARD BHD Valuation score*.40 Fundamental score** 2.0 TTM P/E (x) 0.54 TTM PEG (x) 0.27 P/NAV (x).38 TTM Dividend yield (%).00 Market capitalisation (mil) Shares outstanding (ex-treasury) mil Beta.35 2-month price range *Valuation score - Composite measure of historical return & valuation **Fundamental score - Composite measure of balance sheet strength & profitability Note: A score of 3.0 is the best to have and 0.0 is the worst to have HEVEABOARD BHD FY FY2 FY3 ROLLING 2-MTH RATIOS 3/2/20 3/2/202 3/2/203 DPS ($) Net asset per share ($) ROE (%) Turnover growth (%) 2.73 (0.2) Net profit growth (%) (87.0) Net margin (%) ROA (%) Current ratio (x) Gearing (%) Interest cover (x)

12 WE D N E SDAY S E PT E MB ER 2, 205 D IG ITA LED G E DA ILY I N V E ST I N G I D E A S BROUGHT TO YOU BY I N S I D E R A S I A S S TO C K O F T H E D AY SURIA CAPITAL HOLDINGS BHD H5 net profit for Sabah ports operator Suria (Fundamental: 2.3/3, Valuation: 2/3) increased by more than three-fold from RM30.9 million to RM03.9 million, boosted by an extraordinary gain of RM2.5 million derived from the Jesselton Quay project. Its shares jumped 9.5% to RM2.9 after the company announced its 2Q5 results last Thursday. Excluding revenue and profit from the Jesselton Quay project, however, revenue for H5 dropped 8.% y-o-y to RM36.3 million while pre-tax profit declined 85% from RM42.4 million to RM6.4 million, primarily due to an impairment loss of RM20.3 million on port assets and provisions of RM3.5 million for share grant and ESOS expenses. We believe its long-term cash-generating capability from its quality assets i.e. major ports in Sabah remains intact; the provisions may be related to corporate exercises such as rights issue to be carried out later this year. To recap, Suria partnered with SBC Corp SURIA CAPITAL HOLDINGS BHD Bhd and Gabungan AQRS Bhd to develop the Jesselton Quay project a waterfront mixed development project with total net sale value of RM2.9 billion in Kota Kinabalu. In return for its land, Suria would receive a minimum guaranteed RM522 million over the 6-year development period. Predominantly an import/export port operator, Suria s cargo volume is closely correlated to Sabah s economy and, in particular, palm oil exports. Revenue has been, historically, quite steady fluctuating within a 0% band over past five years as is gross margin, at over 40%. The stock is trading at a trailing 2-month P/E of 4.8 times and 35% below book value of RM3.36 per share. Based on trailing 2-month EBITDA of RM204. million, EV/EBITDA stands at only 2.6 times, compared with Bintulu Port s 8.2 times and NCB s 4.6 times. Suria has a minimum 35% dividend payout policy. Dividends totalled 7 sen per share in 204, giving a decent yield of 3.2%. Valuation score* Fundamental score**.54 TTM P/E (x) (0.96) TTM PEG (x) 0.72 P/NAV (x) 3.20 TTM Dividend yield (%) Market capitalisation (mil) Shares outstanding (ex-treasury) mil Beta month price range *Valuation score - Composite measure of historical return & valuation **Fundamental score - Composite measure of balance sheet strength & profitability Note: A score of 3.0 is the best to have and 0.0 is the worst to have Looking for diamonds in the rough? Our challenge at The Edge Research is to discover undervalued stocks and separate the wheat from the chaff. Would you like to join us on the quest? We are looking for bright young minds to join our research team. Fresh graduates are most welcome to apply. If you are interested, please send your rèsumè to: The Manager, Human Resource Department Fax: Only shortlisted candidates will be notified Note: This report is brought to you by Asia Analytica Sdn Bhd, a licensed investment adviser. Please exercise your own judgment or seek professional advice for your specific investment needs. We are not responsible for your investment decisions. Our shareholders, directors and employees may have positions in any of the stocks mentioned. SURIA CAPITAL HOLDINGS BHD (ALL FIGURES IN MYR MIL) Income Statement Turnover EBITDA Depreciation EBIT Associates Interest income Interest expense Extraordinary gain/(loss) Pre-tax profit Net profit - owners of company Balance sheet Fixed assets - PPE Biological assets Intangibles & goodwill Cash and equivalents Total current assets ST borrowings Total current liabilities Total assets Shareholders' fund Long term borrowings SURIA CAPITAL HOLDINGS BHD RATIOS DPS ($) Net asset per share ($) ROE (%) Turnover growth (%) Net profit growth (%) Net margin (%) ROA (%) Current ratio (x) Gearing (%) Interest cover (x) FY2 FY3 FY4 FY205Q 3/2/202 3/2/203 3/2/204 3/3/ (0.0) , , , , FY2 FY3 3/2/202 3/2/203 3/2/ (4.74) (6.24) (8.08) FY4 ROLLING 2-MTH (4.07) (2.08)

13 2 BROKERS CALL/TECHNICALS WEDNESDAY SEPTEMBER 2, 205 DIGITALEDGE DAILY FBM KLCI not out of its bearish trend BY BENNY LEE Two weeks ago, I wrote that the FBM KLCI could find support at the next technical support level at,540 points. The index closed at,532.4 points last Monday, but immediately rebounded yesterday. The index continued to increase on the stronger ringgit and rising crude oil prices. On a week to week basis, the KLCI rose 2.9% to,609.2 points yesterday. The index rose as high as,662 points yesterday, but declining crude oil prices and the regional market weighed down the market sentiment and the index closed lower. Trading volume was firm in the past one week compared with the previous week with a daily average of 2.2 billion shares and a daily average value of 2.4 billion shares. The buying came from local institutions as foreign institutions extended their selling. From Monday to Friday last week, net selling by foreign institutions was RM806 million and net buying by local institutions was RM873.6 million. Gainers trounced decliners 5 to on the KLCI from last week. Top gainers were SapuraKencana Petroleum Bhd (+2.8% from last week), Hong Leong Financial Group Bhd (+6.6%) and AMMB Holdings Bhd (+6.4%). Top decliners were UMW Holdings Bhd (-2.7%), Digi.Com Bhd (-2.3%) and IOI Corp Bhd (-0.3%). Markets in Asia rebounded from last week, but pulled back in the past two days to cut some earlier gains and ended up mixed. China s Shanghai Stock Exchange Composite Index increased 6.7% in a week to 3,65.07 points. Hong Kong s Hang Seng Index declined.0% to 2,85.43 points. Japan s Nikkei 225 index increased 2% in a week to 8,65.69 points and Singapore s Straits Times shed only 0.% to 2, points. US and European markets rebounded as well. On Monday, the US Dow Jones Industrial Average rose 4.% in a week to 6, points. Germany s DAX Index increased 6.3% to 0, points in a week and London s FTSE 00 rose 5.3% to 6, points. Daily FBM KLCI chart as at September, 205. The US Dollar Index strengthened from 93.3 points a week ago to 95.9 points on Monday. The stronger US dollar caused the price of gold to pull back. Commodity exchange or Comex gold declined.8% in a week to US$,33.50 (RM4,75.36) an ounce. West Texas Intermediate or WTI crude oil jumped from its lowest level in six years and increased 26.5% in a week to US$48.6 per barrel. Crude palm oil on Bursa Malaysia increased 5.6% in a week to RM2,009 per tonne. The KLCI rose above the support level at,600 points that was broken two weeks ago and this indicates support. The index tested the short-term 30-day moving average yesterday at,650 points and immediately pulled back. This indicates that the trend is still technically bearish. Furthermore, the KLCI is also below the Ichimoku cloud indicator. The cloud is beginning to become narrow and this indicates that the market is about to move into a correction. Momentum indicators like the RSI and Momentum Oscillator are beginning to increase. However, these indicators are still below their mid levels and this indicates a weak bearish momentum. Furthermore, the KLCI is below the middle band of the Bollinger Bands indicator. The question now would be whether the KLCI is able to turn into a rally after the strong rebound last week. The steep decline after opening high yesterday indicates a strong resistance. Furthermore, the KLCI spot month futures are at a huge 53-point discount and this indicates that traders are not convinced of the rebound in the index. Henceforth, the index is expected to decline below the,600- point level and to an immediate support level at,560 points this week. The market is also expected to stay volatile. Benny Lee is chief market strategist for Jupiter Securities Sdn Bhd. Jupiter Securities is a participating broker in Bursa Malaysia. He can be contacted at gmail.com. The views expressed in the article are the opinions of the writer and should not be construed as investment advice. Please exercise your own judgement or seek professional advice for your investment decisions. 7-Eleven profit hit by lower sales growth, higher expenses THE EDGE FILE PHOTO 7-Eleven Malaysia Holdings Bhd Sept (RM.46) 7-Eleven s first half financial year 205 (HFY5) core net profit came in below expectations, accounting for 35% of our full-year forecast and 33% of consensus. No dividend was declared, as expected. Its profitability was hit by lower sales growth and higher selling and distribution expenses from new store expansion. We cut our FY5 to FY7 earnings forecasts by 2% to 2% and target price, based on an unchanged price-earnings ratio of 23.6 times calendar year 206 (20% premium to its peers average). We maintain our hold call as we think that it is fairly valued at this level. An analysts briefing will be held on Friday. For exposure to the consumer sector, we prefer QL Resources due to its strong fundamentals and more attractive valuation. 7-Eleven s second-quarter (2QFY5) core net profit fell 34.5% year-on-year (y-o-y) to RM0.7 million even though revenue increased by 2.% y-o-y to RM482.3 million. Year-to-date, HFY5 core net profit declined 0.4% y-o-y to RM25. million, although reve- 7-Eleven (M) Holdings Bhd 2Q 2Q Y-O-Y % Q-O-Q % 2QFY5 2QFY4 Y-O-Y % PREV FYE DEC (RM MIL) FY5 FY4 CHG CHG CUM CUM CHG FY5F Revenue (4.5) ,62.9 Operating costs (455.6) (439.5) 3.7 (4.2) (93.) (868.5) 7.2 (2,026.5) Ebitda (8.5) (9.3) (.) 36.4 Depn & amort (2.6) (9.) - - (23.3) (7.9) - (42.3) Interest expense (0.) (.4) (93.6) (25.4) (0.2) (3.2) (93.5) (0.5) Interest & invt inc (30.8) (27.0) 4.6 Pre-tax profit (34.4) (25.2) (0.6) 00.3 Tax (4.4) (6.8) (34.3) (24.8) (0.4) (.6) (.) (29.) Tax rate (%) (0.6) 29.0 Net profit (34.5) (25.3) (0.4) 7.9 Core net profit (34.5) (25.3) (0.4) 7.2 EPS (sen) (34.5) (25.3) (0.4) 5.8 Core EPS (sen) (34.5) (25.3) (0.4) 5.8 Source: CIMB, Company reports nue registered a 6.7% y-o-y growth to RM987.3 million. The higher revenue was driven by growth in new stores (total stores as at June 30, 205:,854 stores), improved merchandise mix and consumer promotion activity, but this was dampened by the impact from the goods and services tax (GST) implementation, declining consumer confidence and commencement of Ramadan fasting two weeks earlier this year. The higher revenue, however, was negated by the higher selling and distribution expenses, mainly caused by new store expansion resulting in higher staff cost, rental cost and store depreciation expense, resulting in a drop in profit. Staff cost increased 4.9% y-o-y to RM3. million, rental increased 6.7% y-o-y to RM6 million and depreciation expense increased by 3.% y-o-y to RM5. million. On a quarterly basis, 2QFY5 core net profit declined 25.3% quarter-on-quarter (q-o-q) on the back of a 4.5% q-o-q drop in revenue. This was mainly due to the impact of the GST implementation on April, 205, declining consumer confidence, and the earlier start of Ramadan this year. Although we expect 2HFY5 to be stronger than HFY5, we reduce our FY6 earnings forecast by.5%, factoring in the higher selling and distribution expenses due to growth in new stores, which we expect will lead to a compressed profit margin. CIMB Research, Aug 3

14 WEDNESDAY SEPTEMBER 2, 205 DIGITALEDGE DAILY ORGANISER POWERED BY 3 GOLD SPONSORS SILVER SPONSOR BRONZE SPONSOR OFFICIAL TV & RADIO OFFICIAL DRINK Corporate Malaysia runs for education REGISTER TODAY! ENTRY FORMS AND DETAILS AT OR CALL The Edge Education Foundation (TEEF) has applied to the Ministry of Finance for relief from the levy of GST on donations received for The Edge Kuala Lumpur Rat Race. However, TEEF is still awaiting confirmation of this. Unless TEEF is successful in obtaining relief from the levy of GST, the income tax exemption receipt issued by TEEF under sub-section 44(6) of the Income Tax Act, 967 will reflect the total amount of donation/sponsorship monies paid LESS 6% GST. Additionally, should the Ministry of Finance not grant relief from the levy of GST, the total donation amount shall be treated as inclusive of GST.

15 4 BROKERS CALL WEDNESDAY SEPTEMBER 2, 205 DIGITALEDGE DAILY CIMB reports HFY5 net profit below estimates CIMB Group Holdings Bhd Sept (RM4.84) Maintain buy recommendation with a maintained target price (TP) of RM6.50: CIMB Group Holdings Bhd reported first half of financial year 205 (HFY5) net profit of RM.2 billion (+0.3% quarter-on-quarter [q-o-q]; -39.5% year-on-year [y-o-y]). The results fell short of our and consensus estimates at 40% and 33% respectively. The deviation stemmed from higher-than-expected allowances and expenses due to a mutual separation scheme (MSS) cost of RM36 million taken during the quarter. At the total income level, the results would have been in line at 52% of our forecast. Dampening its bottom line, allowances for loan impairments surged to RM. billion versus RM258.6 million in HFY4. The elevated provisions were mainly attributed to its Indonesian operations. That said, the group believes that provisions in the country have peaked, barring further deterioration in economic conditions. From a business-as-usual (BAU) perspective, pre-provisioning operating profit (PPOP) increased by a healthy.% y-o-y. Net interest income advanced 4.4% y-o-y to RM5. billion. Gross loans growth advanced 6.5% y-o-y to RM277.3 billion (excluding foreign exchange [forex] fluctuations: 2.2% y-o-y). In their respective currencies, loans growth was led by others (+47.5% y-o-y), Singapore (+5% y-o-y) and Malaysia (+0.4% y-o-y). Total deposits, meanwhile, expanded 9.6% y-o-y (excluding forex fluctuations: 6.2% y-o-y). Its current account savings account ratio strengthened to 35.% versus 34.7% a year ago. Net interest margin came under pressure, declining 24 basis points to 2.64%. Playing its part, non-interest income jumped 7.3% y-o-y. Movements during the year were a result of forex gains and net gains arising from derivative financial instruments. The non-interest income/total income ratio inched up to 3.9% (HFY4: 29.4%). Reported operating expenses surged close to 20% y-o-y, owing to one-off MSS cost amounting to RM36 million. Excluding the one-off, operating expenses increased at a slower pace of 6% y-o-y to RM4.3 billion. Higher spending was recorded in admin and general (+0.3% y-o-y), personnel (+6.8% y-o-y) and marketing expenses (+4% y-o-y). On a BAU basis, the cost-toincome (CTI) ratio improved to 56.7% (HFY4: 57.9%). Sequentially, net profit increased on higher operating income (+4.2% q-o-q) and better cost management efforts. Overhead expenses declined 0.7% q-o-q, aiding in a PPOP growth of 0.9% q-o-q. The amount of loan impairments (-0.9% q-o-q) stabilised during the quarter. In terms of asset quality, the gross impaired loans ratio saw an uptick to 3.3% versus 3.% in HFY4. This, however, was backed by a higher loan loss coverage of 86.% (HFY4: 84.%). By capital position, its common equity tier and total capital ratios stood at 9.7% and 3.9% respectively. A first interim net dividend of three sen per share has been proposed. It will be paid via cash or an optional dividend reinvestment scheme. The total interim dividend amounts to a net payment of RM255 million, translating into CIMB Group Holdings Bhd FYE DEC 3 (RM MIL) F 206F 207F Net interest income 7,954. 8, , ,46.3 0,004.3 Non-interest income 4, ,93. 4, , ,487.4 Islamic Banking,592.9,46.3,505.,565.3,659.2 Total operating income 4,46.6 4, , , ,50.9 Pre-provisioning profit 6,24.0 5, , , ,467.7 Pre-tax profit 5, , , , ,456.7 Net profit 4, ,06.8 3, ,55.6 4,968.5 EPS (sen) EPS growth (%) 4.5 (3.6) (0.6) Gross div (sen) Div yield (%) Source: TA Securities a dividend payout ratio of 20.9% of HFY5 profits. The increase in non-performing loans did not come as a surprise. The bulk of the increase was due to Indonesia and Thailand. The management believes the worst is over. The second half of 205 should show some improvement. As such, we are keeping our forecasts unchanged. Downside risks could, however, come from Malaysia, although the asset quality here remains intact for now. The management is maintaining its target for FY5. At this juncture, we do not foresee the management meeting its return on equity (ROE) target of %. We predict a softer ROE of 8.% for FY5. The overall outlook for the region continues to be challenging. Capital market activity is also expected to remain weak. Potential key upsides to earnings could stem from the ongoing T8 initiatives as the group is extracting value from cost savings (via the successful completion of its investment banking rationalisation and MSS exercises), as well as acceleration of key businesses in the digital space, small and medium enterprises and transaction banking. The TP is maintained at RM6.50. We continue to see value with the stock trading at FY5E (estimate) price by volume of. times, below the industry s average of.2 times. Buy maintained on CIMB. Key upside/downside risks to our fair value include: i) economic and political risks in Thailand and Indonesia; ii) additional lumpy corporate provisions; iii) a pickup in capital market activity; iv) a pickup in treasury and market activity; v) further margin compression, especially in Indonesia; vi) CIMB successfully reduces costs to below the targeted 55% CTI; and vii) external risk factors due to uncertainties in the global market. Another downside risk to the share price is the stock s high foreign shareholding level of 29%, although we believe the potential selldown is limited as it is currently hovering at an eight-year low. TA Securities, Sept TCM posts lacklustre results on unfavourable exchange rates Tan Chong Motor Holdings Bhd Sept (RM2.43) Maintain hold call with a lower target price of RM2.53 from RM2.99: We roll over our valuation to financial year 206 forecast (FY6F), pegging at 4 times FY6F per earnings (- standard deviation below mean per earnings ratio based on earnings per share of 8 sen). We remain cautious about the stock and see no sign of immediate recovery for the group with prevalent headwinds. Tan Chong Motor Holdings Bhd s second quarter of FY5 (2QFY5) net profit was reported at RM4.6 million, plunging 46.3% quarter-on-quarter (q-o-q) and 73.7% year-on-year (y-o-y). Meanwhile, top line decreased 9.5% q-o-q but rose 6.2% y-o-y to RM.26 billion. For the first half of FY5 (HFY5), net profit was registered at RM40.5 million, declining 57.5% y-o-y. However, revenue increased 20.7% y-o-y to RM2.83 billion. The group s HFY5 net profit was below expectations by accounting for 3% and 32% of our and consensus full-year estimates respectively. The lacklustre results were mainly dented by unfavourable exchange rates and a competitive environment for the automotive sector. There was a slump in bottom line for HFY5 and 2QFY5 on a y-o-y basis. While the group s revenue surged (HFY5: +20.7% y-o-y; 2QFY5: +6.2% y-o-y) on the back of higher car sales and financial services, i.e. hire purchase and insurance, the lower earnings (HFY5: -57.5%; 2QFY5: -73.7%) were attributed to higher completely-knocked-down (CKD) kit costs arising from unfavourable foreign exchange rates, i.e. the sharp depreciation of the ringgit against the US dollar, coupled with fierce competition among carmakers that was driven by aggressive campaigns and promotions. In addition, the high base in HFY4 was subject to one-off write-back of Nissan Vietnam Co Ltd s provision for an additional import duty of RM56.27 million in 2QFY4 (equivalent to US$6.98 million). Excluding the write-back in 2QFY4, HFY5 net earnings still decreased 24.6% y-o-y, while 2QFY5 earnings grew 6.4% y-o-y. The group s 2QFY5 net prof- Tan Chong Motor Holdings Bhd F 206F Revenue 4, , , , , Operating profit Net profit Operating margin (%) Net profit margin (%) EPS (sen) PER (x) P/BV (x) EV/Ebitda (x).00 (0.64) (0.82) (.53) (3.49) Dividend yield (%) Net gearing (%) ROE (%) Source: Company, JF Apex it failed to maintain its positive growth after declining 46.3% q-o-q, following weaker Nissan sales recorded in 2QFY5, coupled with higher CKD costs as mentioned above and marketing expenses. This was evidenced by decreases in top line of 9.5% q-o-q to RM.26 billion and in earnings before interest and tax by 34.7% q-o-q. Nissan sales volume decreased 24% q-o-q mainly due to the high base recorded in QFY5 as consumers rushed in to purchase big-ticket items in anticipation of possible higher prices upon implementation of the goods and services tax in April. We opine that the tough business environment and the continued competitive local automotive scene will weigh on the group this year. The Malaysian Automotive Association (MAA) has released vehicle production and sales figures for the first half of 205 (H5), indicating a 3.3% slide as compared to H4. The MAA also revised down its full-year forecast for total industry volume to 670,000 units from 680,000 units in 205 amid a challenging outlook. In addition, the stronger US dollar against the ringgit is another threat to the group s bottom line due to its large CKD costs. We envisage consumer spending to continue moderating in the third quarter of 205 (3Q5) as a result of economic uncertainty, coupled with rising costs of living. To recap, the Consumer Sentiment Index fell further to 7.7 points in 2Q5, from its six-year low of 72.6 points, according to statistics from the Malaysian Institute of Economic Research. We slashed our FY5F and FY6F earnings estimates by 3% and 26% respectively after significantly lowered our car sales assumptions by 8% for FY5F and 6% for FY6F, due to a challenging operating environment ahead for the automaker. The group declared a single-tier interim dividend of 4%, equivalent to two sen per share, which was one sen lower than in HFY4, in view of the lacklustre results. JF Apex Securities Bhd, Sept

16 WEDNESDAY SEPTEMBER 2, 205 DIGITALEDGE DAILY GENERAL NEWS 5 Police to question Bersih 4 rally organisers Maria Chin Abdullah among the seven to be investigated BY MUZLIZA MUSTAFA KUALA LUMPUR: The Malaysian Maritime Enforcement Agency (MMEA) will meet with the Indonesian authorities on Sept 7 to discuss the custody of the alleged mastermind behind the MT Orkim Harmony hijacking case. MMEA deputy director-general of operations Rear Admiral Datuk Ahmad Puzi Ab Kahar said, at present, the suspect was in the custody of the Indonesian authorities to facilitate the evidence-gathering process and would only be extradited to Malaysia should the need arise. Right now, the alleged mastermind behind the MT Orkim Harmony hijacking case will continue to be investigated in Indonesia before any decision is made to charge him in any of the countries involved, he told Bernama here yesterday. Bernama KUALA LUMPUR: Malaysia is reviewing a proposal from France to buy Rafale fighter jets, but any decision would depend on how affordable the aircraft are, Defence Minister Datuk Seri Hishammuddin Hussein said yesterday. Malaysia, which wants to replace its fleet of Russian MiG-29 fighters, is said to be looking at the Rafale, Boeing s F/A-8, Swedish firm Saab s Gripen and the Eurofighter Typhoon, Reuters reported. French manufacturer Dassault Aviation SA, which builds the Rafale, is said to be in talks with Malaysia to supply 6 of the multirole combat jets. It s too soon to announce anything about it, Hishammuddin told a joint news conference with French Defence Minister Jean-Yves Le Drian in Kuala Lumpur. It s part and parcel of the industry and it s a proposal we looked at... and I have been very transparent with the Malaysian public that it s a question of affordability, he added. KUALA LUMPUR: High Court judge Datuk Asmabi Mohamed disqualified herself yesterday from hearing Datuk Seri Anwar Ibrahim s judicial review application on the Pardons Board s decision to refuse him clemency. Lawyer Latheefa Koya, representing Anwar and his family in the recusal application, said the judge allowed her clients request after hearing submissions. The judge allowed our application after hearing both parties in chambers but gave no reason, she told reporters. The hearing only lasted 20 minutes. Federal counsel Suzana Atan had told the judge the application should be dismissed on the grounds that there was no real danger of bias. Latheefa, who was assisted by Shahid Adli Kamaruddin, argued that there would be an apparent bias if Asmabi presided over the case. KUALA LUMPUR: The police have called up seven members of the Bersih 2.0 steering committee and secretariat over last weekend s 34- hour rally, which Putrajaya had earlier said was illegal. Secretariat member Mandeep Singh said he and six others had been told to go to the federal police headquarters in Bukit Aman today where they would be investigated for concealing a design to commit an offence, attempting to commit an activity detrimental to parliamentary democracy, and unlawful assembly, charges under Sections 20, 24C and 4 of the Penal Code. We were called up and told this morning (yesterday) at 0.30am. We have five lawyers who will accompany us tomorrow (today), he said yesterday. Apart from Mandeep, the others are Bersih 2.0 chairman Maria Chin Abdullah, deputy chairman Sarajun Hoda Abdul Hassan, treasurer Masjaliza Hamzah, national representatives Farhana Abdul Halim and Fadiah Nadwa Fikri, and Adam Adli Abdul Halim. This police directive comes after Home Minister Datuk Seri Ahmad Zahid Hamidi warned that although there had been no arrests prior to the Bersih 4 rally, they could still take action against its A Malaysian decision had been expected this year, but aviation industry executives have warned that fiscal troubles stemming from lower prices for oil and commodities could In view of yesterday s outcome, Latheefa said the judge also vacated another judicial review application by Anwar to challenge the Election Commission s refusal to let him vote in the Permatang Pauh by-election early this year. The case was scheduled before Asmabi today. Anwar, now serving a five-year prison term for sodomy, has applied to disqualify Asmabi two weeks ago from hearing a judicial review on the board s decision to refuse him clemency. He said the judge was the same senior federal counsel who represented the government in his suit against former prime minister Tun Dr Mahathir Mohamad. The judicial review is to compel the board to revisit its earlier decision to refuse Anwar clemency. Anwar, who was appointed deputy prime minister and finance minister in 993 and was sacked on Sept 2, 998, had challenged his dismissal on grounds that Dr Mahathir only organisers after the event under the Peaceful Assembly Act and other regulations. He said police would monitor the rally leaders as well as all speeches made during the event, which was held simultaneously in Kuala Lumpur, Kota Kinabalu and Kuching. The police were earlier lauded for exercising restraint and for not disrupting the 34-hour rally in Kuala Lumpur. The Malaysian Insider M sia reviewing French proposal for Rafale fighter jets MMEA, Indonesia to discuss hijack suspect custody Le Drian inspecting the guard of honour mounted by the First Battalion Royal Malay Regiment at the welcoming ceremony during his visit to the Ministry of Defence in Kuala Lumpur yesterday. Photo by Bernama lead to delays in placing the order. Hishammuddin also said he had no discussions yesterday with his French counterpart on the procurement of Mistral helicopter carriers, which the French are trying to sell. Earlier, in Putrajaya, Prime Minister Datuk Seri Najib Razak held a high-profile meeting with Le Drian and French defence industry representatives, Bernama reported. The meeting, which lasted for about an hour, was held during a courtesy call on Najib at the prime minister s office in Perdana Putra. According to a member of Le Drian s delegation, the meeting was also attended by Hishammuddin, and among other things, the discussion covered Malaysia s interest to purchase Mistral helicopter carriers. Reuters/Bernama Judge recuses herself from Anwar s case BY V ANBALAGAN informed the king of his removal after the fact. Asmabi had appeared in the suit in 2007 at the Court of Appeal, which upheld a High Court finding that the prime minister had absolute power to appoint and dismiss his Cabinet members. Anwar s family members wife Datuk Seri Dr Wan Azizah Wan Ismail, and daughters Nurul Izzah and Nurul Nuha had on June 24 filed the application for a judicial review to quash the board s March 6 decision. The applicants had named the Pardons Board of the Federal Territories, then attorney-general Tan Sri Abdul Gani Patail and the government of Malaysia as respondents. After Anwar lost his final sodomy appeal on Feb 0 before the Federal Court, his family on Feb 24 submitted a petition for a royal pardon to the Yang di-pertuan Agong on behalf of the former opposition leader. The Malaysian Insider IN BRIEF Adopt safety culture to reduce accidents at work sites, says Dosh DG SHAH ALAM: The Department of Occupational Safety and Health (Dosh) has reminded employers and construction workers to adopt the culture of safety and health to prevent accidents at construction sites. Director-general Mohtar Musri said a preventive culture was necessary because construction sites carried high risks and workers were exposed to accidents. Between January and June this year, accidents at construction sites throughout the country had taken 27 lives. In the first seven months of this year, 3,34 notices and 49 summonses had been issued to errant contractors for not complying with safety regulations at construction sites, he told reporters after launching the IJM Health, Safety and Environment Day here yesterday. Bernama Crane cable snaps, two Bangladeshi workers seriously injured KUALA LUMPUR: Two Bangladeshi labourers were seriously hurt, with one losing a hand after it was crushed by a luffing crane which broke at the construction site of a condominium near The Rainz Residence, Bukit OUG, yesterday. In the 0.55am incident, the jib of the crane broke and fell from a height of about 30.5m on the two men, who were working on the site. Kuala Lumpur Fire and Rescue Department operations division assistant director Azizan Ismail said both victims, in their 30s, could not save themselves in time and were caught under the cables of the crane. One of the victims broke his leg while the other lost his hand. We are still investigating the cause of the incident, he said when contacted by Bernama yesterday. Both victims were being treated at the Universiti Malaya Medical Centre, he said. Bernama MIC divisional polls to be held from Sept 25 to 27 KUALA LUMPUR: The MIC announced yesterday that party divisional elections have been set for Sept 25 to 27. Party secretary-general A Sakthivel said the nominations for the elections would be held from Sept 8 to 20. A total of 50 party divisions in the country are eligible to hold the nominations and elections on these dates. All the divisions have been notified to make the preparations, he said when contacted by Bernama. The divisional elections are being held on the instruction of the Registrar of Societies, which has given the party until October to complete a re-election process. Bernama

17 6 GENERAL NEWS WEDNESDAY SEPTEMBER 2, 205 DIGITALEDGE DAILY Make Selangor investment firm a statutory body Rafizi says this will provide checks and balances, accountability and transparency BY MELATI A JALIL KUALA LUMPUR: Mandatory waste separation at source started in many parts of Malaysia yesterday, including the capital, but a large number of people in Kuala Lumpur were ignorant of the scheme and their role in it. Bukit Bandaraya Residents Association president Datuk M Ali said there had been little to no information to raise awareness of the scheme from the authorities. Residents are left in the dark. Those who do know about the waste separation scheme don t know where to start and others just do not know that it is now mandatory, he said. Ali said the authorities had done a poor job of properly raising awareness and had only a few days ago delivered brochures about the waste separation scheme. It was only on Aug 27 that Alam Flora contacted me to discuss the way forward on reaching the residents to disseminate information. It s sad that those in charge had sat on it until as late as Aug 3, instead of reaching out to the rakyat well in advance to explain the format and procedure. I have always been pushing for government agencies and service providers to stop merely sloganeering but to ensure actual delivery, he said. Ali said while he empathised with Alam Flora s need for the residents to cooperate in the scheme, the information flyers were only distributed a few days before Sept. A meeting between Alam Flora and Bukit Bandaraya residents has been tentatively scheduled for Sept 3, he said. Kepong Community Centre head Yee Poh Ping said while the waste separation initiative was a positive move, only time would PETALING JAYA: PKR lawmaker Rafizi Ramli recommended yesterday that Darul Ehsan Investment Group (DEIG) operate like a statutory body for better governance. Rafizi said although DEIG was being set up as a private company, making it a statutory body could provide checks and balances, and accountability and transparency as its operations could be made public. The issue is governance. It is incumbent upon PKR and the leadership of the state government to prove to the public that our governance is a lot better. That includes having to constitute a very independent governance in the company, not just at the board level but also at the management and investment levels, he said in a press conference at the PKR headquarters yesterday. This comes following criticism of the setting up of DEIG, which has been likened to debt-ridden Malaysia Development Bhd (MDB). Former Selangor menteri besar (MB) Tan Sri Abdul Khalid Ibrahim had asked why DEIG was not under any state enactments and did not need to table its financial statements to the state assembly, despite being responsible for the state s RM6.3 billion investment assets. When asked if PKR supported DEIG, Rafizi replied, Yes. Rafizi said he had forwarded the suggestion to Selangor MB Mohamed Azmin Ali and gave an assurance that the state chief welcomed any suggestion to strengthen the company s administration. Hopefully, with the benefit of hindsight, we put all this governance process ahead of DEIG becoming operational, it will make sure the checks and balances will be in place to allay the fears of the public, Rafizi said. Mohamed Azmin, who had previously denied similarities between his brainchild and MDB, said DEIG would not have any impact on the state since the entity was only responsible for investment matters, while its policies would be decided by Menteri Besar Incorpo- rated and the state government. He said the concept was similar to that practised by the federal government in which the Finance Ministry s MoF Incorporated was fully owned by the Finance Ministry, but investments were handled by Khazanah Nasional Bhd. DAP s Tony Pua also defended DEIG, saying that there was nothing wrong with Selangor s attempt to consolidate its assets under a single special purpose vehicle. Pua added, however, Malaysians should be concerned about the setup of DEIG, not because it would be a MDB scandal, but to ensure the new entity had a proper governance structure to avoid the same fate as MDB. The Malaysian Insider What waste separation as scheme comes into force? BY RAYMUND WONG tell if the people would take to it. Enforcement through fines will only start next year, so maybe it is expected that it will take a few months for the people to adapt, he said. Yee said the people of Kepong had long been separating their recyclable waste. The people are used to keeping their old newspapers or plastics for the men who come around in their lorries, he said. Bandar Baru Residents Association secretary Prem Kumar Nair said it would take time for the people to adopt the new practice. Right now, many are still uncertain about what they need to do. It s new so it s understandable that it will take time to work, he said. Prem said Alam Flora would also be meeting with Bandar Baru residents on Sept 3 to discuss the scheme. It is a good initiative and we will see how it goes at the meeting. If 00 residents show up, the meeting would be a success, he said. Meanwhile, those living in highrises are unsure how they are affected by the waste separation scheme. I have heard about it (waste separation), but we have not been informed by the management. They should be the ones coordinating this, said Brendan Wong, who lives in a condominium in Desa Petaling. Joshua Bryan, who lives in a condominium in Jalan Klang Lama, also said he had not been informed about the mandatory waste separation. The Malaysian Insider reported that SW Corp Malaysia had been tasked to work with residents associations, Rukun Tetangga and joint management bodies (JMBs) towards a successful implementation of the scheme. The main thing that the public has to remember is that it is a 2+ system, meaning two collection days for residual waste and one day for recyclable, garden and bulk wastes, said National Solid Waste Management Department director-general Mohd Rosli Abdullah. Mohd Rosli had conceded that implementing the scheme was a bit of a challenge in non-landed and high-rise buildings. We do provide three types of bins for those who live in high-rise buildings and it is the responsibility of the JMB to ensure that the residents separate their waste accordingly. Once we start to issue compounds, the JMB will be penalised if the waste is not separated, he said. Under the Solid Waste and Public Cleansing Management Act 2007, households in Kuala Lumpur, Putrajaya, Pahang, Johor, Melaka, Negeri Sembilan, Perlis and Kedah are required to separate their waste. Beginning June next year, households that do not separate their waste will be compounded RM50 for the first offence, and RM00 and RM500 for subsequent offences. If the compounds are not paid, the offender can be taken to court to face a maximum fine of RM,000. The Malaysian Insider IN BRIEF Kedah assembly member wins libel suit ALOR SETAR: Bukit Lada assemblyman Datuk Ahmad Lebai Sudin won his defamation suit against Kedah Barisan Nasional executive secretary Datuk Ariffin Man yesterday. Judicial Commissioner Abu Bakar Katar ordered the defendant to pay general damages of RM00,000 and issue a public apology to the plaintiff. The defendant was also ordered to pay RM50,000 in aggravated damages to the plaintiff. Ahmad Lebai sued Ariffin over the latter s statement in a speech at a meeting in Dewan Seri Tanjung, Pokok Sena on Sept 28, 203, which he claimed was malicious and ill-intended to disparage him. Bernama 30,000 units of PRMA houses in Pahang KUANTAN: Pahang will build 30,000 units of houses under the Malaysia People s Housing Project (PRMA). State Housing and Municipal Committee chairman Datuk Seri Wan Rosdy Wan Ismail said the houses costing RM50,000 would be built at 70 locations. Currently, two of the projects, at Gambang, Kuantan and Triang, Bera have been completed. We already have 20,000 applications for the units, he told reporters after the launch of a solid waste management programme and bottle collecting campaign at Kompleks Dagangan Indera Mahkota here yesterday. Bernama Cloud seeding over Sg Layang dam in two weeks NUSAJAYA: Cloud seeding operations over the Sungai Layang dam will be conducted within two weeks before the water rationing period is lifted on Sept 5. Johor Works, Regional and Rural Development Committe chairman Datuk Hasni Mohammad said even though it rained the last few days, the water level at the dam was still low. At present, the water level in the Sungai Layang dam had dropped to 8.99m from the normal level of 26.6m, and the water rationing would be lifted if it exceeded 23.5m, he said. Bernama New lead in search for missing students GUA MUSANG: The search and rescue team for the missing seven Orang Asli students of Sekolah Kebangsaan (SK) Pos Tohoi has found a new lead with the discovery of a socks, believed to belong to one of the students yesterday. The students have been missing for 0 days. Gua Musang police chief Supt Saiful Bahri Abdullah said the white socks was found at about.30am in a forest area, about an hour s walk from the school. The finding of the socks gave us a new lead to continue the search, he said when contacted by Bernama. Bernama

18 WEDNESDAY SEPTEMBER 2, 205 DIGITALEDGE DAILY OPINION 7 Maybe this slowdown is different There could be signs of changes that have the potential to upend a lot about how the world works today BY JUSTIN FOX CHART CHART 2 The global economy is slowing down. A couple of the big emerging-market economies that drove much of the growth during the past 5 years have hit a wall; and the question of the moment is whether the biggest of them, China, is in real trouble too. Commodity prices are tanking. Trade volumes are down. The Baltic Dry Index of shipping costs, which rebounded from a record low earlier this year, is falling again. These are all characteristics of a cyclical downturn. And this is indeed a cyclical downturn oil prices will rise again some day, so will emerging-market stock and bond prices. But there could also be something else afoot. We could be seeing early signs of longer-term changes in the global economy changes that could be enormously positive, but also have the potential to upend a lot about how the world works today. At this point these are just inklings, but I did what I always do when I have an inkling: I made some charts. First, here s the picture on global trade (Chart ). After a spectacular rise in the 2000s, trade volumes plummeted after the 2008 financial crisis. They then recovered, but declined again in 203. More up-to-date figures for just the G7 (Canada, France, Germany, Italy, Japan, the United Kingdom, the United States) and Briics (Brazil, Russia, India, Indonesia, China, South Africa) countries show that the decline may be accelerating (Chart 2). Again, these things do go in waves. But there s good reason to think that the trade gains of the 990s and 2000s probably won t be replicated any time soon. As Michael Francis and Louis Morel of the Bank of Canada summed up in a recent report: Trade reforms and technological innovations that lowered trade costs during the 990s had a substantial effect on global trade by encouraging emerging markets to integrate into the global economy and by making global value chains economically viable. As a result, global trade rose relative to gross domestic product (GDP). However, since this process is largely complete, the underlying incentives to expand trade are likely weaker now than they were in previous decades, leaving the world in a state where trade is neither rising nor falling relative to GDP. A related argument is the one that s been made by Harold Sirkin of the Boston Consulting Group for several years: Building global supply chains became so fashionable for Western manufacturers that they built them even when it made sense to keep production closer to customers; now they re retrenching and re- vising their approach. Still, I can t help but think (perhaps wishfully think) that what we re seeing might also be the beginnings of a plateauing in the world s demand for things and, even more, the resources needed to make those things. After all, the latest United Nations population projections, released in July, do indicate that we may be nearing a plateauing of the number of people on the planet (Chart 3). Still, in the median forecast, the plateauing won t happen until the end of the century. It s possible that it won t happen at all. Also, there are still billions of people around the world hoping to emerge from poverty and consume more things and resources. We d have to see already-affluent people buy fewer things and consume fewer resources to get the kind of shift I m talking about. Are we seeing that? Well, sort of. Here s one remarka- CHART 3 CHART 5 ble shift the US economy has made during the past 65 years (Chart 4). The US economy has grown so much during this period that people now are still buying more physical stuff than they did in 950. Still, there are signs of a plateau. Consider the iconic product of the US economy, the automobile (Chart 5). The big growth years definitely seem to be over, even though US population has kept growing. Still, this chart doesn t exactly offer conclusive evidence. The trajectory on energy use is a little clearer (Chart 6). Americans use substantially less energy per capita now than they did in the 990s. In Europe the trajectory is muddled by the entry of Eastern European countries into the global economy in the 990s, which brought increased affluence and with it higher energy use but the low level is an indication that the US likely still has a lot of room to cut. The rapid growth in energy use in China was of course one of the factors behind the global natural resources boom that recently went bust. The decline in Chinese demand for natural resources during the past year has been one of the main things prompting observers to wonder if the country is undergoing a much-sharper economic slowdown than the official numbers indicate. It may well be. But this also could be evidence of the Chinese economy s shift away from resource-intensive manufacturing and infrastructure building and toward providing services for Chinese consumers. Finally, consider the things that people do want to spend their money on. The defining consumer product of our age is the smartphone. A smartphone is a good, and it takes CHART 4 CHART 6 resources to make and transport it. Still, it takes a lot less resources than, say, a car. Most of its value is in the software that is loaded into the device and the people, information and entertainment you can connect to with it. That s a different sort of value creation than 20th-century resource-based value creation. If that s the direction the global economy is heading towards, the connections between growth, trade and resource consumption aren t going to be the same as they have been. That is probably a good thing. Bloomberg View This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

19 8 FEATURE WEDNESDAY SEPTEMBER 2, 205 DIGITALEDGE DAILY Why the Fed will wait BY MOHAMED A EL-ERIAN BLOOMBERG View columnist Mohamed A El-Erian answered questions last Friday in a live chat for readers on the Bloomberg terminal. Here is a lightly edited transcript of the conversation, hosted by Bloomberg Markets editor Joe Weisenthal Weisenthal: It s been an extraordinary week and there s a lot to talk about, so let s get right into it with a question that is sure to be on the minds of a lot of traders. Given the huge turnaround in risk assets in the second half of the week, is it possible the Federal Reserve (Fed) will still go in September if the economic data hold up? El-Erian: I don t think so. I think they will wait. Remember, the Fed wishes to avoid excessive financial volatility and market instability (something that I wrote about in the Bloomberg View column posted earlier today [Aug 28]). In fact, for the last few years, its major policy bet has been to repress volatility in order to bolster asset prices as a way of encouraging household consumption and corporate investment. I suspect that the last thing that Fed officials would wish to do is to fuel financial instability during a time of global economic weakness and this notwithstanding data that confirms that the United States continues to heal and economically outperform others. So as much as risk assets have turned around dramatically during the second half of this week, this may not be enough to reassure the Fed just yet to hike interest rates for the first time in over nine years. Obviously today s (last Friday s) market action is dramatically less volatile than what we were seeing in the beginning of the week. Can we say the coast is clear for now, or could the volatility and the selling resume? Yes, markets have calmed down on the back of Chinese policy actions, dovish statements by Fed official Bill Dudley and some solid US data. But the underlying causes of volatility are still with us. They include the challenging quest for high and sustained economic growth, over-reliance on central banks and financial asset prices that are still decoupled from fundamentals. As such, there are still many economic and policy handoffs that need to materialise to establish a solid fundamental anchor for markets, and this in a political environment that is far from conducive. When you add to that the structural change in market liquidity one that reduces the size of the intermediation function relative to end-user demand when the market operating paradigm changes the outlook is for more bouts of volatility, some probably quite extreme. Mohamed, a customer is asking about whether the world is at risk of a global recession. Is that a possibility, if the Fed is tightening while China is slowing? That risk has certainly grown. Europe and Japan remain marred in a vulnerable low level growth situation. As today s Brazil GDP (gross domestic product) numbers show, virtually every systemically important emerging economy is slowing down. As such, the US economy finds itself as the only meaningful engine of global growth. That s the bad news. The good news is that there are policy solutions and they involve a lot more than just reliance on central banks and there is ample private sector cash on the sideline willing to engage. The key is to evolve into a PHOTOS BY REUTERS A view of the US Federal Reserve Board building in Washington DC. The Fed wishes to avoid excessive financial volatility and market instability, says El-Erian. Traders working on the floor of the New York Stock Exchange. By last Friday, market action was dramatically less volatile than what was seen at the beginning of the week. Shoppers reflected in a window as they walk though Times Square in New York. The US can continue to grow while the rest of the world is slowing but will find it very hard to achieve the escape velocity needed for economic lift-off. more enabling political process. This (last) week we saw outflows out of emerging markets (EMs) the likes of which we haven t seen since the week of the Lehman collapse. Are we near the bottom for EM assets, or do we have further to go? The outflows were caused by the volatile losses experienced by the asset class. And, in turn, they amplify the pressures on EM assets, robbing it of investment capital and liquidity. More generally, these outflows are a reflection of the difficulties that the asset class continues to face in establishing a large and secure enough base of dedicated investors. Accordingly, with crossover flows often being an important marginal price setter especially at market extremes this is an asset class that can (and does) overshoot both on the way up and on the way down (like now). So while considerable value has already been created in certain names and segments of the asset class, the path forward will be a bumpy one. Mohamed, another customer is curious about the idea of decoupling. In 2008, people were talking about the idea of China decoupling and growing despite a US slowdown. Now it s the other way around, and people are saying the US can grow even with the emerging world slowing down. So, can the US grow with all this weakness around the world? Great question! And it speaks to the difference between relative and absolute decoupling. The US can continue to grow while the rest of the world is slowing. But it will find it very hard to achieve the escape velocity needed for economic lift-off. And it will continue to face downward pressure on its future growth potential. One of the main sources of angst that you hear a lot is that policymakers around the world (especially in developed markets) lack the tools to address another crisis. Interest rates are near zero, and a strong fiscal response is seen as unlikely due to debt levels and lack of political will. A customer is asking: If we do see another downturn, what kind of techniques might the Fed have at its disposal to address the situation? In one sense, the world has used quite a bit of its crisis management ammo. Interest rates are already very low and, concurrently, central banks balance sheets have grown significantly both adding to questions in some people s mind as to the future effectiveness of unconventional policies. Add to that the possibility of growing private sector risk aversion one that could fuel another round of deleveraging and there is cause to worry. But, importantly, there are also positive elements. If you look beyond central banks, there are still quite a few underutilised policy tools. The most important ones have to do with unleashing existing growth capabilities and better matching the will and wallet to spend. Their effectiveness would be turbocharged by the engagement of the significant amount of cash now sitting on the sidelines

20 WEDNESDAY SEPTEMBER 2, 205 DIGITALEDGE DAILY FEATURE 9 A woman cycling pass the headquarters of the People s Bank of China. It is hard to imagine that the Chinese authorities would embark on a huge disposal of USTs without consulting with their US counterparts. (or being deployed in a non-economically productive fashion), as well as transformational innovations. In an ideal world, this more comprehensive set of policies would be deployed now in order to reduce the risks of a crisis down the road. Again, it s a question of political will rather than economic/financial design. According to JPMorgan, much of this (last) week s volatility is attributed to programmatic selling, into investors piling into CTA funds (a CTA [commodities trading adviser] fund is a hedge fund that uses futures contracts to achieve its investment objective) and risk-parity funds. Are you worried about strategy overcrowding and algorithmic selling? I am not as much worried as I am conscious that this has become an important factor in assessing market technicals. Specifically, one should not be surprised at a broader range of markets overshoots that is prices that end up at levels well beyond what would be warranted by fundamentals, whether it s upward or downward. One of the discussion points that arose this (last) week, amid the volatility, had to do with China selling some of its Treasury holdings in order to support the yuan. A Bloomberg terminal user is wondering what happens to the US yield curve down the road, when China doesn t have the need to buy Treasuries to support its currency. This is a very complex issue as it speaks not only to China s behaviour, but also to what then happens to the cash that the country raises by selling part of its holdings of US Treasuries (USTs) and how others react. So with apologies my answer will be wishy-washy and non-deterministic. Sorry! The key issues to watch include: the maturities that China decides to sell, how the cash is then deployed (particularly, whether it ends up with another central bank elsewhere or within the private sector), who decides to front run the Chinese sales, and how other large holders of Treasuries react. If I may, let me end this reply by a political observation. Absent a significant deterioration in the China-US relationship, it is hard to imagine that the Chinese authorities would embark on a huge disposal of USTs without consulting with their US counterparts. There is simply too much economic and financial codependency between the two. As such, America will have the opportunity to minimise the disruptive effects should these be deemed large. Mohamed, this question from a terminal user gets back to the Fed. Do you think there s still too much obsession with when the first rate hike will begin, as opposed to the ultimate pace of hikes once tightening does begin? Furthermore, do you think the yield curve adequately reflects what the Fed has been communicating? Yes. And we should expect Fed officials to deploy a lot of effort in the weeks to come to decisively shift market attention from the timing of the first rate hike to the subsequent path and terminal point. We are looking at the prospect of what I have labelled as the loosest tightening in the modern history of the Fed. It is one that will involve a very shallow path. Its destination will be a policy rate below historical averages. And, rather than consisting of quasi-automatic hikes at each meeting, the process will be much more data dependent and likely to involve stop-go characteristics. So while the obsession with the timing is not surprising after all, it would constitute the first hike in over nine years it is a small part of the policy equation. All right, the most important question of the day, and it s something multiple customers want to know about: What s your forecast for the [New York] Jets this season? Oh man! You are killing me with this question. Having supported the Jets for so many years, I cannot but hope for the best maybe a 9-7 season that allows us to sneak into the playoffs. But it s a big hope a virtually eternal one I suppose. More realistically, we may well be looking at something closer to a 6-0 season. And, you know what, I would be happy with that, especially if the wins include two against the New England Patriots! (Sorry Pats fans!) Bloomberg View Any opinions El-Erian expressed are his own. Bloomberg makes no recommendations about particular securities or investment strategies.

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