The economies of Asia in 2009

Salam and dear all, The following data was taken from the Asian Development Outlook 2009 (ADB, in The Phnom Penh Post, 23rd September 2009, Growth Forecast Slashed by ADB, http://www.phnompenhpost.com/index.php/2009092328527/Business/growth-forecast-slashed-by-adb.html. * Cambodia -1.5% (2.5% March GDP growth forecast) * Thailand -3.2% (-2%) * Vietnam 4.5% (4.5%) * Singapore -5% (-5%) * Malaysia -3.1% (2.5%) * Indonesia 4.3% (3.6%) * Philippines 2.5% (1.6%) * Laos 5.5% (5.5%) * China 8.2% (7%) * Hong Kong -4% (-2%) * India 6% (5%) * South Korea -2% (-3%) * Sri Lanka 4% (4.5%) * Bangladesh 15.7% (9%) * Asia ex Japan 3.9% (3.4%) * Southeast Asia 0.1% (0.7%) South Asia 5.6% (4.8%) * East Asia 4.4% (3.6%) * Central Asia 0.5% (3.9%) Source: Asian Development Bank. It is worthy to refer to the Department of Statistics Malaysia on the state of Malaysia's economy: GDP growth rate Q1, 2009 = -6.2%; Q2, 2009 = -3.9% (source: http://www.statistics.gov.my, 24th September 2009). Wassalam.

How to understand the state of financial affair of a contractor or a client

Salam and dear all,

The following is an edited version of an article taken from The Star at

http://biz.thestar.com.my/services/printerfriendly.asp?file=/2009/9/23/business/4762997.asp&sec=business, entitled How to analyze an annual report and written by Mr Ooi Kok Hwa, Wednesday September 23, 2009.

Students may refer to the notes to understand better the state of affairs of construction companies and clients such as property developers.

According to Ooi Kok Hwa (2009) “…there are many ways to dissect an annual report” and that the following points “are just a quick check on the financial health of any listed companies”.

“Income statement is the financial statement that shows the effects of transactions completed over a specific accounting period. In this statement, we have three key pointers: the current level of revenue; high growth in revenue; and the profits made in proportion to the level of revenue.

The current level of revenue indicates the size of a company. A company with revenue or sales of RM1bil is definitely bigger than one that has revenue of only RM100mil. In Malaysia, companies with revenue of RM500mil and above should be considered as more established companies.

High growth in revenue implies that the company has been expanding over the past period. Assuming the high growth in revenue will eventually translate into high growth in profits, we should invest in companies with higher growth in revenue because this may lead to higher stock prices. If the overall economy is expanding, avoid those companies that are showing a decline in revenue. This might imply that the overall operating activities of the companies are declining.

The profits made in proportion to the level of revenue indicate whether this company has high or low profit margins in its products. The profits here refer to the profit after tax or net income. We should invest in high profit margin companies because high profit margins will provide a cushion to the sudden change in operating environment. A company with revenue of RM1bil and profits of RM10mil is more likely to face tougher challenges in a stiff price competition environment compared with a company with revenue of RM100mil and profits of RM10mil. Balance sheet is the financial statement that shows a company’s assets, liabilities and owners’ equity at a point in time. The two main pointers in this statement are cash in hand and total borrowings.

Cash in hand refers to the cash or cash equivalent like fixed deposits. If possible, we should invest in companies with high cash in hand and zero borrowings. High cash in hand may imply that the company has high chances of rewarding shareholders with higher dividend payments. Besides, companies with high cash in hand have more financial stability than companies with very tight level of cash. This explains why most investment gurus like to invest in cash-rich companies.

Total borrowings include the short- and long-term borrowings. Here, we should check whether the company has reported any sharp increase in borrowings during the financial periods. Most companies need to increase borrowings to support their capital expenditure on any business expansion. However, if a company has been increasing its borrowings each year and the level has far exceeded one to two times the shareholders’ funds, unless its operating activities are able to support the repayments, the company faces very high financial risk. Cash flow statement shows the sources and uses of cash over the period. One very important pointer in this statement is the operating cash flow.

High operating cash flow implies that the company is generating cash from its operating activities. A healthy company should show high operating cash flow because this number will indicate how much actual cash the company has generated from operations during the period. We need to be careful of the companies that are showing profits but at the same time generating negative operating cash flows every year. This may imply that these companies have very high receivables. Any economic downturn may cause a sharp increase in provisions on bad debts”.

Wassalam.

Stamp Duty Act Deferred until 2011

Salam and dear all, Following appeals from key players of the construction industry, the government has deferred the Stamp Duty Act until 2011 (as reported by Bernama 12 September 2009). According to the report (in quoting the MBAM) the deferment will allow the construction industry players as well as other service industries time to adjust and take necessary measures to manage their businesses accordingly. The Treasury announced on Sept 9, 2009, that the ruling has been deferred to 2011 and from Sept 15, 2009, to Dec 31, 2010, all service agreements will be imposed a stamp duty of RM50. After Jan 1, 2011, all service agreements which include construction contracts will be levied an ad valorem stamp duty of 0.5 per cent of the total contract sum. Source: Bernama 12th September 2009. This blog posting 8th September 2009. Wassalam.

Stamp duty on contracts

Salam and dear all, The Malaysian Government has recently imposed ad valorem stamp duty of 0.5% for second-tier private as well as Government contracts. Previously the stamp duty was RM10 per document. This new move by the government would add costs to parties to a contract: contractors, consultants and developers. Already a contractor is having to pay the CIDB's levy of 0.125% of a construction contract and this levy is priced by the contractor usually in the preliminaries section of the contract. Students, pay attention to this new ruling and incorporate them into your estimating courses. Wassalam. http://www.treasury.gov.my http://thestar.com.my

Minor changes to the blog

Salam and dear all, Frequent visitors to this blog might have noticed that for a couple of weeks ago this blogspot was temporarily disabled due to a malicious attack. As of now the blogspot has been restored. The following minor changes (not directly related to the above malicious attack) were introduced to improve the layout and contents of the blogspot: 1. A slightly newer layout to make viewing the contents more pleasing to the eyes 2. The welcome message is now at the top of the posting section of the blogspot 3. Additions of (i) google search engine to search this blogspot and (ii) business news headlines related to Malaysia. I hope the above changes would benefits all. Wassalam.