Reports » Malaysia

Malaysia stock market and companies daily report (October 31, 2012)

Contributed by Shares Investment

Divestment Of PETRONAS Chemicals Vinyl Segment
PETRONAS Chemicals Group (PetChem) will discontinue its vinyl segment. This is part of its portfolio optimisation where the company will incur a cost of RM560 million for decommissioning and site remediation expenses, contract termination dues and impairment expense. The vinyl business had been underperforming compared to other segments mainly due to the lack of close integration with the company’s product value chain. The decommissioning exercise will result in future cash expenditure in phases starting from 2013 onwards, nonetheless the cash expenditure for the current financial year is not expected to be material. The company has three plants located in Malaysia and Vietnam manufacture vinyl chloride monomer and polyvinyl chloride. The two local plants will commence the decommisiong process on 1 Jan 2013 and the exercise is expected to take place over the next two to three years. Specifically for its plant in Vietnam, owned by Phu My Plastics and Chemical Co Ltd (PMPC ), the company will waive its 93.1 percent stake to Phu My Plastics and Chemical Co and cease the business.
Significance: The exercise is expected to impact earnings in the near term, but in the long-run outcome should be positive as the company could focus on its high-margin products that are more closely integrated within the product value chain.

MAS Gain Competitive Edge On Oneworld Entry
MAS has entered into the oneworld alliance, which is expected to boost its competitive edge in the long term. The company will become a full member of oneworld with effect from 1 February, 2013. The addition of MAS will expand oneworld’s global coverage to some 840 destinations in 156 countries. Currently MAS has one of the lowest revenue yields among full service carriers in the region. Thus raising yield is the only way to turnaround the national carrier. Alliance Research said the improvement of competitive edge can be achieved through better products offering, improved service standards, access to premium customers, and an expansion of route networks and flight frequency. MAS revenue yield is expected to improve from 21.7 sen in FY12 to 25.8 sen in FY14. In the meantime, the company will continue to experience unfavourable results as the prospect of turning in a full year profit will only be materialised by year 2014, the research house added.
Significance: The key risk for MAS’ turnaround is the intensifying competition from its peers as well as low cost carriers and the depressing global economic outlook. The oneworld alliance is an opportunity for the company to expand its global route network in a cost efficient manner.

Malaysia’s Proton Enters Into Partnership With Honda
The parent of automaker Proton, DBR-Hicom will enter a partnership with Japan’s Honda. The partnership is expected to provide positive impact to Proton and the DRB-Hicom Group in the long run. In a statement to the Malaysian stock exchange on Monday, DRB-Hicom mentioned that the partnership was to explore collaboration in “technology enhancement, new product line up, platform and facilities sharing”. Over the years, Proton had been suffering from weak sales while struggling to stay competitive in the global market. Honda on the other hand had lowered its sales target in China as Chinese consumers are avoiding owning Japanese brands due to a territorial dispute over a group of islands. Nonetheless, DRB-Hicom is optimistic that the agreement with Honda Motor will provide growth opportunities for Proton, although the partnership will not involve an equity stake. According to Malaysian Brokerage firm TA securities, the arrangement of this collaboration is perceived to be limited to terms of technology transfer and development of new products without Honda taking equity in Proton.
Significance: DRB-Hicom currently assembles Honda models at its plant in Malaysia and previously, negotiations to sell stakes in Proton to Volkswagen and General Motors fell apart due to the desire to keep the company domestically-owned.