Syed Zainal tendered resignation, more to follow

PETALING JAYA : Datuk Seri Syed Zainal Abidin Syed Mohamed Tahir has tendered his resignation as Proton Holdings Bhd's group managing director last Thursday, casting a long cloud over the future of the group which is under siege from local and foreign competition.

Senior financial executives close to the situation said that his resignation, which could presage the departure of several other senior managers at Proton, was largely a result over management differences with the car maker's new owners DRB-Hicom Bhd.

"Syed Zainal has done a good job leading Proton since taking over from Tengku Mahaleel (former chief executive of Proton). During his tenure, the design and quality of Proton's cars has improved, with the new Proton Saga and Persona enjoying high take up rate among buyers," said the executive.

Syed Zainal could not be reached for immediate comment, but close associates of the "automan" said that he has been approached by several senior politicians and government officials to reconsider his decision.

However, Proton's head of public communication Izad Raya commented that nothing has changed in the group's leadership structure and Syed Zainal continue to lead the automaker's operation.

"Not that I’m aware of, as far as I’m concerned everything is moving, just as usual," said Azad when contacted by The Edge Financial Daily to confirm the matter.

A source closed to the company said that DRB-Hicom's group managing director Datuk Seri Khamil Jamil has met up with Syed Zainal to convince him to stay on as Proton's managing director.

It was believed that DRB-Hicom wanted Syed Zainal to stay and lead Proton, because of his expertise and ability to drive the group. However, according to the source, Syed Zainal will not stay at Proton.

"Syed Zainal is not in good terms with Khamil Jamil, because DRB-Hicom wanted to assert their control into Proton's board of directors and influence its decisions, since they have acquired the majority of shares in the group,

"This is met with strong opposition from some other directors as well as several key senior management of Proton, led by Syed Zainal," said the source.

Now, a source said that Proton's advisor and former Prime Minister Tun Dr Mahathir Mohamed is calling on Syed Zainal for a meeting, to try to convince him to stay on as Proton's managing director.

On March 20, DRB-Hicom has received 50.01% direct shareholding of Proton largely from the transfer of Khazanah Nasional Bhd's block of shares in the group.

Thus, DRB-Hicom has become the single largest shareholder of Proton with over 50% voting rights. It has also extended the offer to acquire the remaining shares of Proton that it has not received at the same price of RM5.50 per share it paid to Khazanah.

The view among industry observers is that DRB-Hicom is largely an automotive assembler, having secured assembly contracts with some automotive giants such as Mercedes-Benz, Honda and Volkswagen.

Having said that, automotive industry observers noted that the conglomerate does not have the expert people to run a true-blue automotive manufacturing business.

Under Syed Zainal's leadership, Proton has launched several models which have received rave reviews from buyers and critics alike, and has become some of the country's best selling models for several years.

For instance, the new Saga, which was launched in 2008 has so far become the second best selling model in Malaysia's passenger car market, just behind the Myvi by Perusahaan Otomobil Kedua Sdn Bhd (Perodua).

Even prior to his posting as Proton's managing director, Syed Zainal was the man behind the development of Perodua Myvi, due to his capacity as the managing director of Perodua Manufacturing Sdn Bhd.

The Myvi, a remake of Toyota's Passo and Daihatsu's Sirion, is the best selling model of Malaysia's automotive market since 2006.

Khamil Jamil has recently being appointed as Proton's chairman, replacing Datuk Mohd Nazmi Mohd Salleh, who resigned from the top post on March 16, 2012.

Since 2007, Proton's financial results has been improving, especially in terms of revenue. In 2011, the group raked in RM8.97 billion in sales revenue, compared to RM4.69 billion in 2007, and RM155.61 million of net profit compared with a net loss of RM589.53 million five years ago.

However, that is a far cry from what Proton used to chalk in the early 2000s. In the financial year ended March 31, 2002, Proton recorded RM1.12 billion in net profit, and this is followed by another equally impressive RM1.11 billion in 2003.

The increasingly competitive landscape of Malaysia's automotive industry, and Proton's lack of scale in terms of export market, are some of the factors which drives it down hill.

The government has slowly liberating the automotive industry, in line with the Asean Free Trade Agreement (FTA) and the larger China-Asean FTA, which have reduced the entry barriers of completely built up (CBU) units of passenger vehicles into Malaysia and increase price affordability of the units.

Although the government has provided preferential duties and tax rates for locally assembled cars, the increasing affluence amongst Malaysians have enabled imported cars to carve out niche market share in the industry, although priced higher than Proton's cars.

Since the launching of Perodua Myvi in 2005, the company has overtaken Proton's top position in the automotive market, which it has held since 1985, the year the original Saga was born.

The Myvi is highly popular especially among young, urban buyers because of its sleek design, optimal performance on the road, as well as a price tag and maintenance cost which does not burn a hole in its owner's pocket.

Proton's dwindling fortune has also being associated with its ownership of British luxury automaker, Lotus plc. Proton first acquired 63.75% of Lotus in 1995, and later increased it to 100% ownership in 2003.

Lotus requirement of huge capital outlay for the development of its models has eats into Proton's coffer since the acquisition. Presently, Proton has provided RM2.33 billion of capital investments for Lotus' five-year turn around plan.

The huge capital requirement to revive Lotus has drained so much resources needed for the development of Proton's design and technology, which are seen as trailing other Asia Pacific car makers such as South Korea's Hyundai-Kia, and the Japanese brands.

DRB-Hicom's entry into the national car maker was touted to be the driving force to change its fortune and speed up the development of Malaysia's automotive industry. However, without the expert to drive the group forward, what will become of Proton in the future?

Me, the urban poor

In the 1980s and 1990s, Kuala Lumpur is more a pleasant place to live for the ordinary workers than it is now. Yes, back then the LRTs and the Monorail are non-existence, KLites have to resort to the notorious Bus Mini to get to everywhere. But it is so cheap and efficient that people are willing to 'risk' their lives riding the ever crowded public transportation.

But hey, everything was cheaper back then and the average salaries are more commensurate with the cost of living in the nation's capital. Recalling back what my mom told me time and again that, working as a production clerk in a multinational electronic component factory in Ulu Klang back then earned her about RM1,200 per month (including overtime payment).

And this is in the 80s, mind you, when mamak stall are still serving RM2 per plate for their famous mee goreng mamak, when they are still operating under a shaded tree, when that is the closest thing Malaysians have as an options to 'alfresco dining'. Fuel were so cheap at 85 sen per litre, and public houses were aplenty, built by the City Hall and the PKNS at a token amount of RM90 per month for a one bedroom 'suites'.

So, RM1,200 per month which my mom earned back then as a minah kilang was so plenty, that she could actually saved up for her marriage with my father. Her husband on the other hand was working as a 'readymix' lorry driver, at a time when these type of jobs are still taken up by locals, instead of going to the foreign workers (legal or illegal).

By renting up at a DBKL public housing scheme at RM90 per month, my parents could actually saved up to finally getting a house themselves in a suburban area in Keramat. Build by the PKNS, it was a two bedroom apartment, complete with basic sanitary maintenance, as well as parking lots. Just a couple of yards away was a government school, a bus terminal, and other amenities such as masjid, sport complex, and also commercial areas.

Now, at the age of 55, they have to some extent successfully raised us all three siblings through primary, secondary and also tertiary education. We are so blessed to have a family who has always been planning for the future, and not divulge themselves with unnecessary indulgences. As Malaysia progresses, a lot of its citizens progressed as well, but there remains a large chunk who were left behind in the race of developments.

Flash forwarding to now, we are already in the second decade of the 21st century. Today, as a financial journalist, I earned RM3500 per month. It is more than double than what my mom had earned as a minah kilang back in the 80s. I earned more than what my parents earned combined when they were married. At the young age of 23, I could afford to own a small, city car, produced by our beloved national automotive company, Proton.

However, at the age of 23, I am ashamed to say that I am still living with my parents. I still eat at their house to save on meals, and I still let them wash my clothes everyday. I don't have to pay them any single sen, but I do give the monthly allowance around RM200 per month.

I don't see how, today, with a salary of RM3500 per month, I could actually save up to own a house in the city. There are no longer public housing schemes built in the city centres like what my parents had back then. DBKL has virtually stopped from building these public houses at strategic locations, on the pretext to reduce government's intervention in the economy, to increase the participation of private sectors in the economy, so to speak.

The DBKL public housing scheme which my parents rented when they were around my age in the 90s have been demolished, as it is an "eye sore" with its dilapidated situation, notorious social ills which have sprouted there, and to make way of a multibillion ringgit mix development project led by the private sector, on the pretext of urban rejuvenation. The location was so strategic, in the middle of the city, centered around public transportation systems such as the monorail, LRTs, express buses, as well as very close to public amenities such as a government hospital, public library, green spaces for recreations, and also people's low cost markets and shopping strips.

I haven't heard of any public housing schemes built by the DBKL anymore since the last batches built in Taman Melati, Selayang, Sentul and some other places I can't even recalled. These places are so far-flung from where its tenants work and play, thus increasing the people's reliance on private vehicles for transportation. This inevitable erode the people's purchasing power as they have very few disposable income left after paying for all sorts of things, which have in a matter of just two decades, tripled, or more.

Even the PKNS now have not been building low-cost houses for the lower income classes anymore. Instead, they sold off their lands to private developers to be developed into a higher end condominiums, which is tagged as 'affordable' at the price of RM300,000 for a two bedroom, 600 sq ft units. In a matter of two decades, the same type of property, although it has become nicer now with swimming pools, gated parking lots, and 24 hours security guards, has increase in price by approximately 10 times more.

I am not here to offer any solution to this problem. But it seems that our government today are so ashamed with the urban poor that they placed, or rather 'misplaced' these groups into the far flung areas outside the city centres where they go to work, and humiliate them with the need to own a private vehicle for commute. With the ever increasing fuel prices, and the subsequent price increases in essential items, there is no way in the shortest term, I foresee myself, and my generation to be able to own a house located at a decent place.

(written while sipping a RM5.50 lychee tea, exclusive of service charge and government taxes at an alfresco dining at MidValley Megamall. Next to the megamall, under construction is another multi-billion ringgit mix development on a site which houses the former Kampung Abdullah Hukum.)

Whither Proton?

By now, almost every single Malaysian would have known that the national car maker Proton Holdings Bhd is now a subsidiary of conglomerate led by billionaire tycoon Tan Sri Syed Mokhtar Albukhary, DRB-Hicom Bhd, after the latter acquired Khazanah Nasional Bhd's block of stake in the automotive group.

It was said that DRB-Hicom will rope in German auomaker Volkswagen AG as a partner to turn around Proton and improve the group's brand and quality, especially for export market, since the domestic automotive industry is already matured and saturated.

Proton exports a little over 20,000 units of its cars to other markets, a number which is very small for the group to become globally competitive. In fact, Proton can not depend on the domestic auto market alone to drive its growth for reason I stated above.

Besides the imminent partnership with Volkswagen (DRB-Hicom has long being a partner to the German giant), there are also talks that General Motors is keen to utilise Proton's plant to be its South East Asian base. There is also the long standing relationship with Japan's Mitsubishi Motor Corp as it has been Proton's partner since day one.

DRB-Hicom, as the ultimate shareholder of Proton, should decide how it plans to turn around Proton. It has the option to just make Proton as a 'rebadging' automaker, that is by just assembling cars by other automotive group and stamp its badge on top of it, just like the Inspira.

This should make Proton profitable, as it doesn't have to invest substantially in new models and new technology, it will just become another extension of DRB-Hicom's automotive business. However, this will diverge from the raison d'etre of Proton itself , which is to speed up the industrialisation process of Malaysia.

As Malaysia rise up in terms of gross domestic product (GDP) per capita, and aspires to become an industrialised and developed country, it has to move its industries up the value chain. It can no longer afford to become a low cost, low value added manufacturing base like it was twenty years ago.

The partnership with Volkswagen seem to be the best options for all parties. Proton could utilize technology transfers from the Germans, and Volkswagen could utilise Proton's Tanjung Malim plant for its assembly base in South East Asia.

However, there is no guarantee that with Volkswagen in the team to turn around Proton, the national automaker would finally become a force to be reckon with. Proton should not just be another Skoda to Volkswagen for it to become internationally acclaimed like Hyundai-Kia.

Perception has a lot to do with the value of its brand. It is in fact the hardest thing to do, to change people's perception of Proton cars being cheap in all aspect, including quality. DRB-Hicom has to invest heavily into developing Proton's technology, quality and design for it to gain back the people's trust.

Proton need to expand its export market. South East Asia should be its main target, rather than Australia, South Africa, or Iran. It has to carve out a substantial market share in the region's large economies with large populations and rising income such as Indonesia, Thailand, Vietnam and the Philippines.

It has to study the market really well. Indonesia now maybe a big market for multi-purpose vehicles (MPV) and sport utility vehicles (SUV), but Proton should not just focus on these type of cars just to tap the Indonesian market.

Indonesia's rising economy should alleviate millions of its people from poverty and entering the middle class segment. As Indonesia is still lacking in infrastructure especially in public transport in its major cities such as Jakarta, Surabaya, Bandung and Medan, more people will have to rely on private vehicles for transportation.

In the near future, car ownership in Indonesia will become what it is right now in Malaysia - a necessity rather than luxury. Proton should take advantage in this growing economy and expand its present there. As the evolution of Indonesia's economy continues, more of its people would want a nice car at low cost.

Proton could tap the Asean Free Trade Area (AFTA) agreement to its advantage to expand its presence in Indonesia. It has almost 100% content made in Asean, so it should have cost advantage to other automakers especially those from Japan and South Korea.

The same goes to Thailand, Vietnam and the Philippines. But again, brand awareness and perception could become the decider in Proton's bid to strengthen its domination in the local automotive market as well as its export markets.

Proton's journey as a contending automaker in Asia Pacific is just about to start, with DRB-Hicom at its helm. So sit back, Malaysian, and lets just pray for the best for the national pride. A lot has been said about Proton, but it is not wrong or spent for us to believe that one day, Proton could actually stand on the same league as the other car makers in the global arena.

Ananda selling out from regulated businesses?

Tan Sri T Ananda Krishnan is back under the spotlight again. This time is due to him selling his power generating assets under Tanjong Energy Holdings Sdn Bhd (TEH), a subsidiary of Tanjong plc to government investment arm 1Malaysia Development Bhd (1MDB) for RM8.5 billion.

It is not a surprise why the reclusive billionaire wanted to relinquish his power generating assets in the country. This is because the fourth generation power purchase agreement (PPA) is expected to not be as attractive as the first generation agreement for the billionaire to bank on.

Analysts and industry observers alike speculated that the fourth generation independent power producers (IPPs) will not be given attractive rates to sell power generated to state utility company Tenaga Nasional Bhd (TNB), judging from the agreement signed for the second and third generation IPPs.

"The latest round of PPA might not be too generous for the IPPs. If you see, the power purchase rates agreed in the second and the third generation are lower than the first generation.

"We don't think the government would want to give the so called fourth generation better rates than the third," says an analyst with a local bank.

However, some observers pointed that Ananda is "offloading" his investment in the power sector because he wanted to get out of regulated sectors. This is because any changes in government policy or circle of power will influence the direction of the business.

Except for his telco business, his other businesses such as power generation, gaming and satellite television are seen as 'regulated businesses'. Power generation business is tied to power purchase agreement with the government, while licenses for gaming business are renewable annually.

Last year, Ananda sold his gaming business, Pan Malaysian Pool Sdn Bhd, to a consortium of Malaysian Chinese businessmen, which include fellow billionaires Tan Sri Quek Leng Chan and Tan Sri Lim Kok Thay of Hong Leong and Genting group respectively.

The reason given for the disposal of the gaming business by Tanjong was as part of its bid to be more shariah-compliance to expand its power generating business in the Middle East.

However, many contemplated that to become more 'Islamic' was not the reason to the sell off of Pan Malaysian Pool, but due to the regulatory nature of the business.

This is because to make Tanjong a shariah-compliant business, Ananda could just list out Pan Malaysian Pool as a separate entity, rather than having to dispose it off in its entirety.

Pan Malaysian Pool controlled about 25% of the number forecasting business in Malaysia, behind two other larger rivals Berjaya Corp Bhd's Berjaya Sports Toto and Magnum, controlled by Multi-Purpose Holdings Bhd.

As at January 31, 2010, Pan Malaysian Pool generated RM730.78 million of revenue and RM234.82 million in operating profits for the Tanjong group. It is a cash cow to the group, besides the more lucrative power generating business.

So could it be that the reason he sold Tanjong's power assets to 1MDB, and Pan Malaysian Pool to a group of Chiness businessmen was because of the high regulatory risks imposed upon these sectors by the Malaysian government?

It is worth noted that TEH does not only own power generating assets in Malaysia, but also in Sri Lanka, Bangladesh, Pakistan, Egypt and United Arab Emirates. It is not known how the regulatory risks in these countries could affect Ananda's decision to sell his entire power portfolio.

"However, the turmoil in Egypt, as the country sees the transition between military rule to civilian government led by the Islamist factions could as well be an uncertain event for Ananda to continue holding power generating assets in the country," says an observer.

"Once Tanjong's power assets is transferred to the government, any arising dispute or policy changes by the incoming government of Egypt could be amicably resolved through bilateral discussions between the two governments," adds the observer.

The direction of which Egypt's new government will take in regards to the country's economy is not yet clear. There remain risk of the government trying to nationalise some of the country's crucial economic sector, which may include power generation, contemplates the observer.

Plus, when it comes to changes in government policies or circles of influences, Ananda has had his share of his businesses being hit by the uncertain political situations in a particular country.

Besides the regulated nature of Malaysia's power generation and gaming businesses, his investment in pay television in Indonesia was met with restrictions which caused him to lose money in the venture. He pulled out from Indonesia soon after making in roads into the country.

Ananda has also been under the spotlight for the wrong reason in India.

He and some of his business affiliates and the former telecommunication minister of India, Dayanidhi Maran are under scrutiny and investigation by the republic's Central Bureau of Investigation (CBI) due to some irregularities in Maxis Communications Bhd's investment in Aircel Ltd several years ago.

It was alleged that Maran as the then telecom minister of India when Maxis acquired stakes in Aircel, favoured the group in the takeover of Aircel over other bidders, and in return investments were made by the Astro All Asia Networks in Sun TV owned by Maran family.

It was also reported that Ananda is planning to exit the pay TV sector in Malaysia, of which his company Astro has been enjoying 15 years of monopoly.

He was reported to include MEASAT Global, the holding company of Astro through MEASAT Broadcast Network System, into the sale of the power portfolio.

However, in the announcement regarding the acquisition of Tanjong's power assets, 1MDB did not mention that it is acquiring the satellite operator as well.

With the introduction of internet protocol television (IPTV) by Telekom Malaysia Bhd (TM) and his own Maxis, Astro is now facing competitions, something it has not experienced for the last one and a half decades, an industry observer points out.

Foreign companies such as Asian Broadcasting Network (ABN) has also been reported to be interested to set up another pay TV station in Malaysia. This move could have send the signal for Ananda to exit the business fast, adds the industry observer.

"There has also been some rumours that the government is mulling for all pay TV stations to share their contents. It's going to be more intense for the sector going forward, so he (Ananda) might not be interested in it anymore," says the observer.

Nevertheless, Ananda's move to exit the power generating business in Malaysia might not be followed by the other first generation IPPs. Other first generation IPPs including YTL Power International Bhd (YTLP), and MMC Corp Bhd's Malakoff.

YTLP and Malakoff are expected to continue bidding for the rights to build power plants for the fourth generation IPPs, according to another analyst with local investment bank.

The analyst said all the first generation IPPs has submitted for their bids for pre-qualification in regards to the Prai power plant in Seberang Prai to the government.

"The government is pushing for a lower rates for the power and renegotiate the first generation PPA for the extension of another ten years period for their power plants,

"The government is also mulling to rope in foreign companies to take a maximum stake of 49% in the Prai power plant project, if the first generation IPPs don't want to renegotiate the terms," says the analyst.

The first generation IPPs are expected to abide to the government's will to renegotiate the rates, as they would not want their assets to be left redundant without making any money, adds the analyst who covers the domestic power sector.

Nevertheless, some large IPPs are contemplating of exiting the business as well, or at least not to bid anymore for the fourth generation PPA, according to the analyst.

Genting Bhd, which controls Genting Sanyen Power Sdn Bhd, might not want power generation to be one of its core businesses going forward, say the analyst.

On the other hand, Sime Darby was reported to be interested in the acquisition of the Jimah power plant, which is held by Jimah Energy Ventures Holdings Sdn Bhd.

During Sime Darby's media briefing on its financial period ended December 31, 2011, its president and chief executive officer Datuk Bakke Salleh pointed out that the group will be looking for acquisition of assets or businesses which is in line with its current core businesses.

After selling out its oil and gas fabrication yards last year, Sime Darby might want to acquire new assets to give its energy division a timely boost. A power plant with a long term concession to supply electricity at a favorable rate is definitely a good choice of investment for the group.

The 13th General Election is just around the corner!

It is that time of the year again. Although the Prime Minister Datuk Seri Najib Razak hasn't yet announce the dissolution of the Parliament to make way for the 13th General Election, signs are there that the time for the people to go to the ballot box is near. Moreover, it has been four years since the groundbreaking March 8, 2008 general election which saw the ruling coalition Barisan Nasional lost its traditional two third majority in the lower house, which would have enabled them to pass all laws and jurisdictions virtually unopposed.

According to English daily The Star (yes, the one who costs the nation major PR disaster) today reported that the signs are already there that the government will call for the dissolution of the Parliament soon. For instance, the government's decision to halve the toll charged at the Cheras-Kajang Highway (better known as the Grand Saga Highway) is deemed as an effort to shore up its popularity in the eyes of the people. This is because toll rates have always been a political hot potato as the scheduled hike in toll charges at the rate of between 5% to 10% every three or so years burned a huge hole in the rakyat's pocket.

Another sign is the fact that the PM has been on a nationwide tour, with the latest was in Kedah, where he made a "public apology" on the short comings of his administration in the rice bowl state in the years prior to the 12th general election in 2008. Kedah, which its current government Parti Islam se-Malaysia (PAS) saw an internal strife between camps favoring the current Menteri Besar Datuk Seri Azizan Abdul Razak and those who oppose, and its lackluster performances especially in attracting larger foreign and domestic direct investments into the state, could have seen more state seats going to the BN this time around.

The federal government coalition has been taking on the generous man role, as in the six months to one year period to date, it has given cash hand outs and incentives to the rakyat, especially in the rural states and the urban poor, to mitigate the rising cost of living which is deemed to be very high. In its budget 2012, the government announced various cash hand outs schemes such as, among others, one-off cash hand outs for low income households, and to all primary and secondary school students nationwide, with a promise that it'll reduce the burden of rising cost of living.

Popular and socialist policies are common features in the Malaysian political scenario. Both parties of the political divide has been trying to outdo each other in churning out or proposing popular, socialist policies to shore up support in the politically divided settings. The federal opposition coalition, Pakatan Rakyat has repeatedly calls for lopsided agreement between the government and independent power producers (IPPs) to be reviewed, citing it has forced the state utility company Tenaga Nasional Bhd (TNB) to buy electricity from the politically connected IPPs at a high price. The coalition has also called for the abolishment of toll rates or at least to freeze any scheduled increase in toll rates.

Recently, former prime minister and the architect of Malaysia's modernisation in the early 1980s to the middle 1990s, Tun Dr Mahathir Mohamed has commented in his blog post that the government's minimum wage legislation will cause the country to bankrupt. He said the nation has already too many holidays and that the increase in wages should be accompanied with the increase in labor productivity. Citing Europe which is mired with a debt glut, Mahathir said Malaysia should not simply follow the European way of paying high salary to their workers but labor productivity remains low.

The signs are there that the general election will be called very soon. After the groundbreaking outcome of the 12th General Election in 2008, the next general election is touted to be the most crucial one for both the ruling coalition and the federal opposition. BN would want to recapture the states that it has lost to PR, and also increase its share in the lower house of the Parliament to at least a 2/3 majority. On the other hand, PR's ascension politically in the rakyat's mind and heart will give them a fair share at winning the federal government, although it would not be an easy fight.

Sime Darby Bhd posts record profit for 1HFY12

Sime Darby Bhd (Sime Darby) might see any of its core divisions, such as plantation, property, motor or industrial, to be listed as a separate entity from the group in calendar year 2013, according to its president and chief executive officer Datuk Bakke Salleh. However, the group is seeking the optimization of value from such exercise before it would list any of the divisions.

Speaking to the media after the group's briefing on its financial result for the second quarter financial year ending June 30, 2012 (2QFY12), Bakke said Sime Darby is in fact "working on a few initiatives" to get some of its divisions publicly listed. He said any listing exercise would be done in phases and the most probable date would be somewhere next year.

"We are working on a few initiatives. The game plan is to do it in phases and we look at the entities in our portfolio, certainly plantation, or even property, industrial and motor, will be ready for that, but it is a matter of timing and we have to consider the optimization of value. My hunch tell me that next year will be the preferred year for any kind of listing," said Bakke.

Sime Darby yesterday announced a net profit of RM1.16 billion during the second quarter ended December 31, 2011, up from RM922.9 million during the corresponding quarter due to higher realised crude palm oil (CPO) prices and strong, all-round financial performance in its other core businesses. During the quarter, the group posted revenue of RM11.4 billion, which is a 14% increase year-on-year (y-o-y) from RM9.99 billion in 2QFY11.

Net profit during the first half of the financial year ending June 30, 2012 (1HFY12) was at RM2.23 billion, an increase of 40% from RM1.61 billion recorded a year ago. The group revenue during the period meanwhile shot up to RM22.5 billion, an increase of 20.3% over the year from RM18.7 billion.

Bakke said the third quarter ending March 31, 2012 (3QFY12) is rather challenging for the group, particularly in the first two months, as yield pattern for FFB in Malaysia as well as Indonesia has dropped compared to the preceding quarter. He said the group is expecting a lower contribution from the plantation division in the next few months, and stick to its key performance indicator (KPI) of attaining RM3.3 billion in net profit for FY12.

Higher crude palm oil (CPO) prices and operational efficiency improvements boosted the Plantation Division's operating profit to RM1.8 billion in 1HFY12, an increase of 38% over the corresponding period a year ago, according to Sime Darby. Average CPO price during the period increased to RM2,872 per mt from RM2,692 per mt in 1HFY11.

The group's fresh fruit bunches (FFB) production increased by 4.6% during the period under review to 5.4 million mt, driven by the higher production in Malaysia of 9.5% which offset the decline of Indonesia's production of 3.7%, led by the 11% increase in Malaysia, which more than offset the 8% decline in Indonesia, due to change in the cropping pattern, according to the group's statement.

"The group's CPO production was also higher by 10% compared to the first half of FY11 as oil extraction rate (OER) for the group improved by 0.5% to 21.9%. Indonesia's OER had improved significantly by 1.1% to 22.9% while Malaysia's OER increased by 0.2% to 21.3%," the statement read.

As expected by analysts and economists alike, the group's midstream and downstream segment reported a loss of RM37 million for the 1HFY12 period, due to the negative margin as a result of higher feedstock costs, lower demand for refined products in Europe and competition from other downstream players in Indonesia.

Indonesia last year cut its export tax on refined palm oil to 13% from 25% , while export tax for CPO was cut by a smaller margin to 22.5% from 25% earlier. The move has made Indonesian refined palm oil being priced lower compared to their Malaysian counter parts and made refinery business there more competitive.

Nevertheless, according to Sime Darby's chief financial officer Tong Poh Keow, the group managed to leverage on the new export tax structure in Indonesia, as the group is currently building a refinery at Pulau Laut in Indonesia with a capacity of 825,000 mt per annum, which is expected to be completed by the end of 2013.

For its industrial division, the group said it continued to record robust activity in the mining, logging and construction sectors in Australia and Malaysia. The division posted an operating profit of RM627.7 million, an increase of 37.7%  over the same period in the preceding year. Its industrial business in Singapore also rebounded by 34% compared with the corresponding period due to the stronger demand for engines and heavy equipment.

Meanwhile, its China and Hong Kong operation of the industrial division reported a decline of 11% y-o-y in 1HFY12 , affected by the slowdown in construction activities following the tightening credit policies by both banks and local governments to curb the overheating of its economy, the group stated.

"Nevertheless, in the second quarter, operating profit for the China and Hong Kong operations recorded a 71% growth to RM26 million compared to the preceding quarter as certain sectors of the Chinese economy continue to remain robust and active," it stated.

Mdm Tong said going forward in the third quarter, the group foresee a better result from China and Hong Kong, as economic activity has actually picked up after the Chinese New Year holiday.

The group stated following the completion of the Bucyrus dealership in December 2011, the Industrial Division now has an expanded product line for its customers with an expected average increase in the division's profit before interest and tax (PBIT) by 10% to 11% per annum, between FY12 and FY15. Currently, the division has RM4 billion in orderbook, which could last by about eight to 18 months.

The motor division also posted a higher operating profit during the period under review at RM308 million, from RM227 million a year ago, boosted by strong demand for all marques and the receipt of dividend . Its Malaysian operation, which distributes brands such as BMW, Hyundai, Porsche and Ford, registered an operating profit of RM117 million during 1HFY12, which is more than double the RM58 million recorded a year ago.

"While the operating profit of the China, Hong Kong and Macau operations were weaker by 32% in the first half compared to the corresponding period last financial year, the second quarter results had improved by 29% against the preceding quarter supported by higher unit sales of BMW in Hong Kong and better margins in China," the group stated.

During the period, Sime Darby Motor division sold 38,935 units of cars, an increase of 10% y-o-y from 35,490 units. In Malaysia, the division sold 10,638 units, which is 10% higher than the corresponding period's 9,083 units, while in New Zealand it sold 4,131 units, a 16% increase from 3, 573 units sold during the corresponding period last year.

The BMW brand has become the industry leader in Singapore, replacing Toyota during the period under review. Performance Motor Ltd, which is a unit of Sime Darby Motor division sold 4,226 units of BMWs in Singapore during 1HFY12, compared with 3,871 units in 1HFY11, an increase of 9% y-o-y. Sale in China increase by 8% y-o-y to 13,968 units during the period from 12,896 units.

The property division's operating profit increased by 46% to RM193 million in 1HFY12, mainly attributable to higher percentage of property development works completed and sales in the various townships including USJ Heights, Bandar Bukit Raja and Ara Damansara, according to the group's statement. New launched during the quarter under review such as the Isola in Subang Jaya and Eleven Avenue in Bandar Bukit Raja were also well received.

Sime Darby's energy and utilities division meanwhile posted a 127% increase in operating profit in 1HFY12, primarily due to recognition of deferred revenue of RM99 million from its power plant in Malaysia. However, its operation in China reported a slightly lower operating profit of RM37 million, which is 3% lower that 1HFY11 operating profit of around RM38 million, as it incurred higher costs associated with capacity expansion.

Last but not least, its healthcare division posted a higher operating profit of RM14 million during the period under review, which is 7% higher compared to the same period last financial year, underpinned by higher in-patient and out-patient visits, offsetting the higher overhead costs incurred for the construction of Sime Darby Medical Centre Ara Damansara, which had its soft launch on January 12, 2012.

On the possibility that the group will be looking for another mergers and acquisitions (M&As), Bakke said the group will certainly be looking at M&A activities within the core businesses of Sime Darby, such as plantation, industrial, motor or property. Following the disposal of its oil and gas business, particularly its fabrication yards, Bakke said the group will not be seeking acquisitions of another core business at least for the next five years.

"We will only consider mergers and acquisition in the scope of our business, such as plantation, we will take on new land banks, companies that are involved in this business, why not? But definitely we will not announce a new core business at least in the next five years," he said.

Sime Darby annouced an interim dividend payment of 10 sen per share, which is an increase of 2 sen per share from the corresponding period's dividend payment of 8 sen per share. During the period under review, Sime Darby paid out RM1.33 billion of its financial year ended June 30, 2011 profit after tax (PAT) as dividends to its shareholders.

Malaysian Union - A Dream Too Far? (Part 1)

In recent years some economists have emulated an economic union between the two nations on the Korean peninsular. Yes, you read that right, a united Korea between the communist north and the capitalist south. The union between the two countries have been suggested and discussed among the economic and political sphere for quite a long time, taking precedence from the unification of the Germans in 1989. However, the unresolved war between the two nations have made the idea of a "United Korea" on the back burner of the global agenda.

The unification of the two Koreas will create a an economic and military superpower, of which according to many, will surpass that of other first world and G20 economies such as Germany, France and even Japan. Currently, South Korea has the 15th largest economy in the world, and a major industrialist in Asia and the world. The North, however, has among the poorest in Asia, with a government-led economy and an autocratic regime.

The differences of the two Koreas have caused the idea of a reunification between the two become more complicated than it sounds. For almost 60 years, since the end of World War 2, the Koreas has been divided and ruled in a completely different ways. The North has been ruled and aligned to the communists, after being put under Russian administration right after the War, while the South has been ruled as a democratic, capitalist country pursuant to it being administered by the United States in 1945.

Despite the economic and social benefits that could be created out of a united Korea, the idea is hard to be realized. Although the two governments have made several commitments towards the unification, the most prominent ones being the June 15th North-South Joint Declaration, the economic and social disparities between the two nations is so vast that there's more oppositions to the idea rather than constructive actions by both parts.

Forget about the Koreas. This article is not going to discuss about the possibility and feasibility of a United Korea. Rather, this article seek to revive an idea which has been on my hearts, and I believe, many who call themselves "Malaysians". This article seeks to put forward the idea of a united Malaysia, or better worded or construed as - the formation of a Malaysian Union or Malaysian Confederation.

Since 1946, when the Imperialist British put forward a form of governance to the then Malaya, the Malayan Union, which consisted of the 11 states of the then British Malaya (now Peninsular Malaysia), the British was the one who separated Malaya's most precious jewel - Singapore. The Malayan Union was vehemently opposed by the Malay Nationalists back then because it took away the power of the states' Sultans over the governance of the country, while the democratic-socialist movement of All Malayan Council of Joint Action - Pusat Tenaga Rakyat (AMCJA-PUTERA) opposed it on the ground that it was done undemocratically and excluded Singapore from the Union.

After nationwide opposition in the form of public disobedience famously called "Hartal", the British government proposes the Federation of Malaya instead, in 1948, replacing the Union. Once again, the British separated Malaya and Singapore into two different political entities. This was however excepted by the Malay elites who pose major influence onto the people, as the governance form of the Federation recognises the function of the states' Sultans as the Head of States, although it remained largely ceremonial up to this day. By the time the Federation came into form, the idea of a united Malaya and Singapore fought by the AMCJA-PUTERA was largely dismissed.

However, after Malaya gained independence from the British in 1957, consequently the young government reignited the idea of a united Malaya and Singapore, which will be called "Federation of Malaysia". Together with the British territories of Sarawak and North Borneo (now Sabah), the Federation was realised in 1963. Nevertheless, after only two years of unification, Singapore was expelled in a highly emotionally-charged affair. The dream of a united, progressive Malaysia together with Singapore once again diminished in 1965. Since then, the two young countries has grown into among Asia's best economically and socially in their own rights.

Singapore today has a highly-advanced capitalist economy, governed by a semi-autocratic, but democratically elected representatives. It is a high income economy, with a GDP per capita of USD50,123. It is the financial capital of South East Asia, and also its major advance technology manufacturing base. Despite its tiny geographical size, population and lack of natural resources, its visionary leaders have managed to turn the once back water economy into one which is highly regarded in the international stage.

Malaysia too has done relatively well on its own right. Since the 1960s, the country has grown to become the third largest economy in South East Asia, surpassing its larger neighbors such as the Philippines and Vietnam, and only behind Indonesia and Thailand. However, in terms of GDP per capita at USD8,617, it stands as the third richest as well, but behind its smaller neighbors and once brothers Singapore and the oil-rich Brunei. It is the second largest producer of palm oil, third largest producer of natural rubber, and has the largest Islamic capital market in the world.

In terms of governance and political form, there are not many differences between the two countries. Malaysia and Singapore are both governed by democratically elected representatives and both uphold common universal values and human rights. Both have a prudent and sound economic and social policies, which are formulated to govern the various ethnics which made Malaysia and Singapore as their home.

The challenges faced by both countries could be deemed as reasonably similar, as both countries are trying to find the right balance for equitable growth across all races, while maintaining fair economic and social policies. For example, since the racial riot in 1969, Malaysia has adopted a positive discriminatory stand in favor of the Malays to increase the ethnic's participation in the country's economy, while Singapore has been to dependent on foreign labor to maintain high sustainable growth rate, in the expense of its very own delicate social fabric.

Actually, through the re-unification of Malaysia and Singapore, several economic and social problems which the neighboring countries are currently facing could be managed and handled better than if they were to stay separated as of now. For example, Singapore's labor shortage could as well be overcome by the larger labour force of which Malaysia has, while skilled labor currently based in Singapore could be utilised by Malaysian companies as well.

In terms of ethnic proportion, Singapore has a majority Chinese population at about 60% to 70%, while Malaysia has a majority Malay/Bumiputera population of about the same percentage. The increase in Chinese population would not make any major disruption to the social fabric in Malaysia, as it has already a large chunk of ethnic Chinese population. Although ethnic Chinese comprised about 2/3 of Singapore's population, that is actually only about 4.2 million additional Chinese population in absolute number. Malays would still be the largest ethnic in a reunified Malaysia at about 16.8 million in absolute number.

Economic and political policy, such as ethnic preferences in Malaysia and meritocracy and survival of the fittest in Singapore could actually be reconciled. In fact, Malaysia's ethnic preference policy is not blatantly used that it disregard merits at all cost. Meritocracy is still a prerequisite in Malaysia and ethnic preferences is just a tool to re-balance economic growth across all ethnics. Singapore's expertise could be tapped to bring in the culture of merits in Malaysia, and through time, ethnic preference could be dismantled, given strong political will by the federal government.

With the abundance of natural resources Malaysia is endowed with, and the greater population that it has compared to Singapore, could actually bring in more economic prosperity to Singapore. Already, Malaysia and Singapore is regarded by foreign investors as a single market, whereby both countries are the largest trading partner to each other. Malaysia exported raw materials such as crude oil and palm oil to Singapore to be refined (notwithstanding the fact that Malaysia too has a significant refineries) and re-exported to other countries in the region, for example.

(to be continued)