Reports » Malaysia

Malaysia stock market and companies daily report (October 12, 2012)

Contributed by Shares Investment

Petronas Says National Role Compromised If Royalty Payments Increase
Petroliam Nasional (Petronas)’s sustainability to contribute to the nation might be pressured should royalty payments to the states be increased from the present rate of five percent to 20 percent. This was according to a statement issued by the oil company recently. The company added that the increase will lead to lower petroleum income tax payments and correspondingly, the company’s profits will also be reduced and potentially affecting its ability to pay dividends to its shareholders. It added that such increases will disrupt the profitability and economic viability of all current and future oil and gas projects under development and in turn, hinder Petronas and production sharing contract (PSC) contractors from further investing in these projects. “Over the next five years, planned projects with a total capital expenditure worth about RM170 billion are at risk of being cancelled. Coupled with declining production from maturing domestic fields, this will actually result in lower royalty payments to the states over time,” said the state-owned oil company.
Significance: The indirect impact would cause adverse multiplier effect on the domestic oil and gas industries leading to a reduction in employment opportunities for the people residing in those states.

Scomi Up On ‘Less Negative’ Report
Shares of Scomi Group were actively traded on Thursday 11 October after analysts became less pessimistic on the company’s prospects after meeting with top management. The counter recovered lost interest as retail investor became optimistic with the prospects of the company securing some jobs in the near term. At mid-noon of 11 October, the company’s stock was up 1.76 percent to 43 sen with 16 million shares traded. According to chief executive officer Shah Hakim Zain, following the current restructuring, Scomi will turn its focus on to key oil and gas growth areas both locally and in the eastern Hemisphere. The group had also bid for a risk sharing contract (RSC) related to two marginal oil fields under Petronas while bidding as much as RM15 billion worth of rail jobs which it plans to partner with IJM on civil works , said the CEO. Although CIMB analyst meeting with management help convince the research house on the overall deal. CIMB however noted that it “remains unexcited about potential job prospects for IJM via Scomi”.
Significance: Scomi shares have been trending upwards since 15 August, prior to the announcement of the IJM acquisition, suggesting that there may be favourable developments within the company yet to be disclosed.

Malaysian Economy Vulnerable to Oil & CPO Exports
Malaysia’s economic position will continue to depend largely on oil and crude palm oil (CPO) prices, exports and the political environment, said OCBC Bank (Malaysia). The bank’s Chief Executive Officer Jeffrey Chew Sun Teong warned of the worst case scenario for Malaysia would be for all factors to follow a simultaneous negative trend. “Now, the CPO price has been slipping significantly and we have seen a slowing demand for local products, especially from China, India, Brazil and European countries,” he told reporters after delivering his keynote address at the ACCA Malaysia Annual Conference 2012 here on Thursday. Another important indicator he emphasises is when oil prices stayed low for more than six quarters as oil remains the core revenue for the country. He also said that a combination of broadening tax base with gradual removal of subsidies would help widen the country’s revenue.
Significance: Malaysia being a net exporter of oil and gas, as well as CPO relies heavily on the commodities to finance fiscal spending thus increasing the vulnerability of the government budget, and hence the country’s economy, to fluctuate with the commodity’s prices.