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KPI review for GLCs inevitable





KUALA LUMPUR: A review of government-linked companies’ (GLCs) key performance indicators (KPIs) next year is inevitable given the current global economic crisis that has affected equity markets worldwide.


The government’s investment arm, Khazanah Nasional Bhd acknowledged last week that it would review some of the GLCs’ KPIs next year. Its managing director Tan Sri Azman Mokhtar said for 2008, the GLCs were on track to meet their KPIs on the basis of their performance for the first nine months of the year.


He said the KPI review next year would not solely be on the basis of returns on equity or returns on investment, but a holistic one in improving their operational efficiency and cost savings.


Analysts said many of the sectors in which the GLCs operated had become increasingly challenging, as the spillover effect of the financial turmoil in the US and many other economies had resulted in both a surge in costs and decline in demand.


“Companies with US dollar-denominated debts, those with a sharp jump in trade receivables and whose suppliers are at risk of going bust will find it hard to sustain earnings,” said an analyst with a regional research house.


She said Khazanah made the right move in setting up its Beijing Representative Office (BRO) last week, as it would place it in a better position to explore investment opportunities in China.


“Khazanah could be looking at investing long term in China and the timing is right. The government investment arm is still rich and its presence there will open the doors for Malaysian companies,” she said.


Jupiter Securities Sdn Bhd head of research Pong Teng Siew concurred saying: “You must be based in China to understand the business culture there and keep abreast of market intelligence”.


Khazanah has investments in companies in various sectors including automotive, finance, healthcare, infrastructure and construction, media and communications, property, transportation and utilities.


Of these sectors, Pong said companies in the telecommunications and healthcare sectors would be fairly resilient in the current economic downturn period.


“Telcos are fairly defensive stocks, and in the case of Telekom Malaysia Bhd, the fixed-line business is a cash cow. Of course there is the capital expenditure that has to be spent on the broadband rollout but this could be spread over a longer term,” he said.


As for healthcare, he said while people would opt for affordable treatment, they were unlikely to compromise their well-being.


Pong said media companies like Astro All Asia Networks Plc could be affected by lower consumer spending and would also come under pressure with lower advertisement expenditure revenue for at least the next one to two years.


Meanwhile, infrastructure players could benefit from government spending over the next few years, but building material supply constraints could hit their bottomline, he said.


“For example, steel producers are not stocking up as price for the commodity is dropping. So at some point there will be a hike in prices due to shortage and this would translate into higher cost for infrastructure and construction players,” he said.


Khazanah has stakes in PLUS Expressways Bhd, Ho Hup Construction Bhd and the UEM companies in this sector. Other sectors that would be adversely affected include property, transportation and utilities, he said.


“The property segment is not exciting at all at the moment. Even foreigners could slow down on their buying here as they might be affected by the credit crunch in their own countries.


“Middle Eastern buyers will likely look at areas like KLCC but might not be interested in township areas, so there will not be the critical mass to support this sector,” he said.


As for Malaysian Airline System Bhd and Tenaga Nasional Bhd, higher fuel costs would hurt these companies, he said.


An analyst with a local bank-backed research house said the automotive sector would face difficulties, as this was evident from the global pattern affecting major carmakers impacted by declining sales and rising costs.


“Cars are big ticket items and buyers could defer purchases or decide not to buy at all. There are also issues of costs that carmakers like Proton Holdings Bhd will face especially with the ringgit now lower against the US dollar,” he said.


On the financial services sector, he said while there could be some form of pull-back from banks, the institutions in Malaysia did not face a financial crisis as they had not been adversely affected by a credit crunch unlike the US banks.


“Banking stocks including Bumiputra-Commerce Holdings Bhd and Malayan Banking Bhd have taken a beating in recent weeks, but this is more due to overall sentiment,” he said.





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