Fairchild To Stop Operating in Penang

Folks,

Fairchild Semiconductor has expressed its intention to close its operations in West Jordan, Utah (US), Bucheon, Korea and Penang, Malaysia.

This was notified by Invest-in-Penang Bhd (Invest Penang) Director Datuk Lee Kah Choon.

He said that Fairchild's plan to consolidate its operation is "regrettable".

As for the staff retrenchment (or downsizing), Invest Penang said that it  is in constant contact with Fairchild to offer job placement options for affected staff, job counselling and other assistance.

"We however take heart that through new investments in Penang as well as expansion and re-investment by existing investors, the job market in the state remains positive," Lee said in a statement yesterday.

As at July 31, 2014, there are some 11,759 jobs available in Penang.

Malaysia's Trade With Israel

Folks,

Received today in my email is the statement by the Datuk Mustapa Mohamed, Minister of International Trade and Industry, in clarifying the issue between, what is allegedly as Malaysia's trade with Israel.

Before I begin analysing his statement, I wish to note here that Malaysia has no diplomatic relations with Israel. And how do I know this, and how can I prove this?

Well, this is more clearly palpable in Malaysian passports where it is clearly stated that the passport is invalid in Israel.

Now come to this issue of trade with Israel. As far as I know, and this is confirmed by the minister himself, Malaysia has not official trade with Israel.

He dismissed rumours that Malaysia has direct trade with Israel.

This is what the minister said:

Secara dasarnya juga, Kerajaan Malaysia tidak menjalin hubungan ekonomi secara langsung dengan Israel. Namun begitu, Kementerian Perdagangan Antarabangsa dan Industri ingin memaklumkan bahawa kesemua pintu masuk ke Palestin dikawal oleh pihak berkuasa sempadan Israel kecuali di sempadan Mesir – Semenanjung Gaza, dan Kerajaan Mesir hanya membenarkan kemasukan bantuan kemanusiaan, ubat-ubatan dan makanan ke Palestin melalui Rafah Border Crossing.

Which I translate this as:

In principle, the Government of Malaysia has no direct economic relationship with Israel. But, the ministry wishes to inform that all entry to Palestine is being guarded by the Israel's border authority except in Egypt-Gaza border, and the Government of Egypt only permits humanitarian aid, medical supplies and foods to Palestine through Rafah Border Crossing.

The full statement by the minister (in Bahasa Melayu) only can be read here.

Hope that this will clarify this issue further.

Based on the statement by the minister, I am therefore satisfied beyond reasonable doubt that Malaysia has no direct trade with Israel. And our indirect trade with Israel is definitely beyond our control and we do so minimally to maximize our efforts in helping our brothers and sisters in Palestine.

Our economy in 2Q14

Folks,

The latest article I wrote was about Malaysia's economy in the second quarter of 2014 (2Q14). Apparently, our economy has recorded robust growth which beats the Bank Negara Malaysia's GDP 2014 forecast between 4.5% and 5.5%.

And in an interview with them last week, Nomura Securities economist projects that our economy will expand to 6% in 2014.

Source: The Edge Financial Daily, Monday, August 18, 2014, page 6

Our economy grew 6.2% and 6.4% in 1Q14 and 2Q14, respectively.
In the six month of this year, (1H14), the economy grew by 6.3%.

You can read the statement by Bank Negara Malaysia for 1Q14 here, and 2Q14 here.

For other research reports on analysis of the 2Q14 GDP, please find it here:

#	Research House	Research Report Title	GDP Forecast
			Previous Forecast for 2014	Latest Forecast for 2014
1	BIMB Securities	Malaysia’s economy accelerates in 2Q (click here to read)	5.2%	5.8%
2	Hong Leong Investment Bank (HLIB) Research	2Q14 GDP: Surprise On the Upside (click here to read)	5.7%	6.0%
3	DBS Research	Daily Breakfast (click here to read)	5.2%	Will be announced in September
4	M&A Securities	Najibnomics is Working: 1H14 GDP at Solid 6.3% (click here to read)	5.0%	5.5%
5	AmResearch	Malaysia sustains robust growth in 2Q14 (click here to read)	5.3%	5.7%
6	CIMB Research	2Q14 GDP: strong growth spells rate hikes in Sep (click here to read)	5.5%	6.0%
7	JF Apex Securities	2Q GDP: Surprise, surprise (click here to read)	5.3%	5.5%
8	AllianceDBS Research	2Q sizzles on stronger exports recovery (click here to read)	6.0%	5.5%
9	MIDF Research	2Q 14 Real GDP stronger-than-expected, growth to moderate in the 2H 2014 (click here to read)	-	5.5%

Source: various

PMB Tech benefits from rising aluminium prices

Folks,

Yesterday I wrote a story about PMB Technology Bhd, whose share has steadily climbed, thanks to rising aluminium price, the second most use metal after steel.

Please find my piece below below:

Source: The Edge Financial Daily, Friday,  August 15,  2014, page 4

Citi Research - Maxis Vulnerable as TM Grows its LTE Business

Folks,

Here is the latest article that I wrote on telecommunications industry, which was published today (Thursday, Aug 14, 2014).

The article is largely based on the recent report by Citi Research, a division of Citigroup Global Markets Inc.

Source: The Edge Financial Daily, Thursday, August 14, 2014, page 5

The original report can be read here.

In general, Citi Research is "broadly underweight" on the overall Malaysian telecommunications sector citing weak earnings growth outlook, premium valuations and compressed yields.

As for its recommendations, Citi Research has:

• "Sell" for Maxis and Telekom Malaysia
• "Neutral" for DiGi and Axiata

Taliworks corporate exercise

Peeps,

Something interesting is brewing in engineering outfit Taliworks Corp Bhd.

Taliworks is an investment holding company involved in water treatment and supply, waste management
via operations and maintenance (O&M) contract and concession, construction and toll concession

This can be traced from the recent performance of its share price, which rose as high as RM1.42 per share and then retreated to some RM1.34 per share and noon today.

The highest price of the stock peaked at RM1.43 per share last Friday, the highest since Jnaruary 11, 2011.Based on the the share price of RM1.39 yesterday, Taliworks has a market capitalisation of RM606.72 million.

Source: Bursa Malaysia

Well, this company came to my radar a few months back, and I had the opportunity to attend and interview–along with other reporters–the soft-spoken CEO, Ronnie Lim Yew Boon, after it convened its annual general meeting on June 18, 2014 at Sime Darby Convention Center.

Here is the article that I wrote on Taliworks, which was published on Thursday, June 19, 2014.

Source: The Edge Financial Daily, Thursday, June 19, 2014, page 7.

The article above talks about Taliworks not selling its highway to other parties.

The very reason for this statement was in response to my question to him, which I cited that SILK Holdings Bhd had announced earlier that it is selling its 100% stake in Sistem Lingkaran-Lebuhraya Kajang Sdn Bhd to IJM Corp Bhd for RM398 million cash (click here).

Taliworks currently operates a 11.5km highway spanning from Kajang to Cheras. The highway currently collect two tolls:- one is at Batu 9 Toll Plaza (charge: RM0.90) and one is at Batu 11 Toll Plaza (charge:RM1.00). The toll road provides a steady and recurring income to Taliworks.

Last year, Taliworks recorded an average daily traffic of 137,936. On segmental basis, the average daily traffic at Batu 9 and Batu 11 toll plazas amounted to 74,083 and 63,853.

A simple calculation would yield RM66,674.70 and RM63,853 in daily revenues for toll plazas at Batu 9 and Batu 11 respectively, totalling RM130,527.70 of daily revenue for the highway.

On yearly basis, the revenue for Batu 9 and Batu 11 highways would yield RM24,336,265.50 and RM23,306,345.00, totalling RM47,642,610.50.

If you look at the annual report (click here, go to page 103), Taliworks recorded a total revenue of RM332,404,000 (RM332.40 million), and based on the simple arithmetic that I did–which was not verified by any parties, by the way)–the toll road contributed about 14.33% to the group's total revenue.

The figure for its toll highway revenue, however, was not present in Taliworks annual report 2013. Perhaps, for reasons of confidentiality, I suppose.

Interestingly, the highway toll segment contributed 16.6% to Taliworks' pre-tax profit of RM10.08 million which inched 2% from RM9.81 million in 2012.

In my view, a toll highway is a good recurring income for a company, and selling the asset must be totally and seriously justified.

Anyway.

Yesterday, Taliworks told Bursa Malaysia that EPF bought 32% stakes in its highway from Taliworks.

Source: The Edge Financial Daily, August 12, 2014, page 5

Chronology

This can be traced back from the announcement by Taliworks to Bursa Malaysia last week, on Friday, August 8, 2014 (click here).

Last week, Taliworks also announced to Bursa Malaysia that it is reorganizing the company, whereby, previously, Taliworks held a direct 55% equity interest in Cerah Sama Sdn Bhd, which is the holding company of Grand Saga Sdn Bhd, the operator of the 11.5 km highway spanning from Cheras to Kajang.

Shareholders having stakes in Cerah Sama Sdn Bhd include Taliworks (55%), The South East Asian Strategic Assets Fund or SEASAF (35%) and Trinitywin Sdn Bhd (10%).

Taliworks said that after the re-organisation, its economic interests in Cerah Sama Sdn Bhd remain at 55%, and becomes its subsidiary.

TCB [Taliworks] has recently completed a strategic review of its businesses, strengths and weaknesses and opportunities for growth as well as how best to implement a dividend policy of a stable and growing dividend for its shareholders to better reflect the stable cash-flow generating characteristic of infrastructure projects.  As a result of this review, TCB will be actively pursuing operating infrastructure projects in developed markets.  The purpose of this Re-organisation is to create a new holding company above Cerah Sama to pursue this growth strategy. 

The holding company above Cerah Sama is now Pinggiran Infrastructure Sdn Bhd.

The new organization chart is as follows:

Source: Taliworks as announced in Bursa Malaysia (click here)

Then yesterday, on August 11, 2014, Taliworks told Bursa Malaysia that pension fund Employees Provident Fund (EPF) is buying 49% stake in Pinggiran Infrastructure Sdn Bhd, via Pinggiran Ventures Sdn Bhd for RM68.683 million, comprising10,000 ordinary shares of RM1.00 each and 68,673,000 redeemable non-cumulative preference shares of RM0.001.

The purchase is also equivalent to EPF's indirect interest of 31.85% in Cerah Sama, while Taliworks' stake will be diluted to 23.15%.

Following the announcement yesterday, the above organisation chart should change a bit, in the sense that Pinggiran Ventures is now wholly-owned by the EPF. What I am trying to say here is that the line linking Pinggiran Ventures to Pinggiran Muhibbah Sdn Bhd should be removed.

Anyway.

What this corporate exercise will mean is that Pinggiran Muhibbah, the wholly-owned subsidiary  will own a 51% equity interest in Pinggiran Infrastructure while EPF will indirectly own the balance 49% through its stakes in Pinggiran Ventures Sdn Bhd.

Reasons for Acquisition

In an announcement to Bursa Malaysia, Taliworks said that Pinggiran Infrastructure will be the new growth engine, and it will be targeting acquisitions of operating infrastructure assets with “predictable cashflows”.

This sentiment was similarly echoed by Taliworks to me when I attended the annual general meeting few months back. From the tone they told me a few month back, Taliworks seem set to gear-up for new growth.

Taliworks added that its long and established track record in toll roads, water treatment and waste management will contribute the deal sourcing and operational expertise to this joint venture.

So something is definitely positively brewing in Taliworks. I wonder what will be next

I wish the company well in its endeavour!

++

Financial Performance

Below is the snapshot of Taliworks' financial performance in the last five years

Source: Taliworks Annual Report 2013 (click here)

Lifeline for Malaysian Airline System Bhd

Folks,

Last Friday, the Malaysian Airline System Bhd, otherwise known as Malaysia Airlines or simply MAS, made an announcement to Bursa Malaysia on its turnaround plan. Well, the plan was actually engineered by  its major shareholder Khazanah Nasional Bhd which holds 69.37% stake in MAS, while the remaining  30.63% are held by other stakeholders.

The corporate exercise, known as Selective Capital Reduction, would mean that Khazanah Nasional is working to take the airline private or de-listing from floating on Bursa Malaysia.

Khazanah Nasional has proposed to pay 27 sen per share to minority shareholders, and with this, it will be able to take MAS private. MAS was last traded at 24 sen, last week. Paying this amount would cost Khazanah Nasional some RM1.3 billion.

The letter from Khazanah Nasional to MAS can be read here. And the detail outline can be found here.

Current Shareholding Structure

At the moment, of the 30.63% that are not owned by MAS, 20.4% is free float which means that anyone can buy the share through the trading system. The remaining 10.23% are held by minority shareholders, and they are:-

• Pemodalan Nasional Bhd through Skim Amanah Saham Bumiputera (1.66%)
• Great Eastern Life Assurance (0.60%)
• Norges Bank Investment Management (0.29%)
• State Financial Secretary (0.27%)
• Mega First Housing Development (0.19%)
• Employees Provident Fund (0.18%)
• OSK Capital Paartners (0.13%)

The exercise above will require 50% in the number of minority shareholders and 75% in the value of minority shareholding. Convincing the minority shareholders is a heavy task on its own because every shareholders would want their return maximized.

Analyst Recommendations

According to investment analysts, most of them agreed that the minority shareholders should accept the offer from Khazanah Nasional.

The report from the analysts are shown below for your consumption.

#	Research House	Research Title	Recommendation	Selected Quotes
1	AllianceDBS by Alliance Investment Bank (click here to read)	Time To Say Goodbye	Accept Offer	“Khazanah intends to execute a restructuring plan for MAS post-delisting. Substantial amount of capital will need to be injected for this purpose. Hence, the entry of a strategic partner cannot be ruled out.” “As part of the restructuring, we expect MAS to realign/downsize its network and withdraw from unprofitable routes. This would remove the excess capacity within the industry, and bring yields to more sustainable levels, while benefiting the other domestic airlines (AirAsia, AAX).”
2	RHB Research by RHB Investment Bank (click here to read)	Exit The Turbulent  Flight	Accept Offer	“This gives minorities an opportunity to exit MAS at a slight premium, which is a preferred scenario vs bankruptcy.” “Khazanah believes the proposed privatisation would give it more flexibility to execute the restructuring plan and put in place an appropriate capital structure” “We expect MAS to be relisted once a sustainable turnaround is made.”
3	AmResearch by AmInvestment Bank (click here to read)	To claw back some, or to commit more?	Accept Offer	“We think there is a fair chance for the proposal’s success. Firstly, minority shareholding in MAS is well distributed.” “Secondly, the deal values MAS at a decent FY14F PBV of 1.6x.” “Thirdly, the offer is at the highest end of consensus’ fair value range of RM0.10 / share - RM0.27 / share (mean: RM0.18 / share).” “In essence, investors face the decision whether to take back some of what has been sunk into MAS, which admittedly is quite painful, or otherwise, commit more and risk losing some or all of that too, which can be equally or even more painful judging by the absence of success in the countless restructuring plans (and cash calls) at MAS over the past decade”
4	MIDF Research by MIDF Amanah Investment Bank (click here to read)	Privatisation to pave the way for restructuring	Accept Offer	“We see the SCR exercise as a good opportunity for shareholders to exit the stock. Based on our estimates, we expect MAS’ airline operations to remain loss-making over the next few years premised on the current weak yield environment and high jet fuel price.”
5	Maybank IB Research by Maybank Investment Bank (click here to read)	Khazanah Privatisation Offer	Accept Offer	“We opine that the offer price of MYR0.27 is fair and is a good exit price for shareholders. We expect MAS‟ upcoming 2Q14 results to be the weakest ever due to the triple impact of: i) a seasonally weakest quarter, for 2Q; ii) the industry continues to be plagued by very weak yields stemming from oversupply and muted demand; and iii) flight cancellations at MAS (76) to date, from China to Sabah) which will weigh on fixed overheads.” “Assuming there was no privatisation offer, our target price for MAS is MYR0.125 which is based on 1.0x FY15 P/BV. Even then, we assume a capital raising is necessary in order for MAS to sustain operations beyond 2015.”
6	HLIB Research by Hong Leong Investment Bank (click here to read)	Privatization on the Table	Accept Offer	“The outlook of MAS is of great concern, given the national airline has been suffering core losses since FY2009. The upcoming 2Q14 performance is expected be the worst, due to the after-effect of MH370 incident (March 2014) in lowering load-factor and passenger yields. The recent MH17 incident (July 2014) has further worsen passenger demand.” “MAS has undergone 3 times of restructuring and fundraising exercises since 2007, which has not yielded turnarounds due to heavy competitions (especially from LCCs), changing market demand, sub-par economy growth, ineffective management and high cost structure.” “Following the privatization, we expect MAS to cut long haul routes, (as MAS can still leverage on Oneworld Alliance) and concentrate on shorter regional and domestic networks, as well as downsize the aircraft fleet and staff number.”

Source: Research Reports

Financial Results

According to one analyst, MAS is currently burning some cash at a rate of RM5 million daily. It currently have some RM3 billion cash, and analyst predicts that it will "wither sooner than many may think".

Let us take a look at its financial performance to date:

• In the first three months of 2014 (1Q14), MAS reported a net loss of RM279 million, its biggest net loss over two years, and its fifth consecutive quarter of losses.
• Last year (FY13), MAS registered a staggering net loss of RM1.17 billion.

The following is the financial performance of MAS in the past five years:

Source: Annual Report 2013

Now, let us take a look at the route revenue and overall load factor. The route revenue is the income that MAS obtained for flying to a particular destination in a particular region, while the load factor measures the capacity utilization of the airline (the number of people it flies to a particular destination):

Source: Annual Report 2013

Many analysts have opined that MAS should cut unprofitable route, and only fly to destination that would rake significant profits. Further analysis on this need to be done in order to appreciate the issue in further depth. Percentage wise, the chart below will explain further:

Source: Annual Report 2013

As for the upcoming financial results,  which will be announced soon, Maybank IB Research Mohshin Aziz told The Star that:

the results will be awful perhaps the worst in its history. When that happens, it will definitely spook every-one and evaporate any hope for a revised offer.

Such a strong-worded statement from an analyst must not be taken with a pinch of salt, let alone a belacan, but it must be treated with the highest amount of care and concern!

My Opinion

I do not have any shares in MAS, therefore my opinion is free from being biased.

However, I do want to see MAS return to the black (meaning, return to profitability). There will be hurdles, and yes, it will take some time for them to achieve the results that they so desire.

But along the way, I suggest the following (basic and drastic!) steps to be taken:-

1. Remove and replace all senior management team, including the CEO, SVP and VP. With all due respect, the time has come for them to either retire or find another job, and let a fresh team to execute a plan. Especially for the post of a CEO. You have to find the person with necessary experiences in the airline industry. Managing airline is not the same as managing some factory, utility or a bank. It requires deeper understanding of the aviation industry. And the senior leadership team should be given a contract of 5-years as returning to profitability for a company of the size of MAS, in my opinion, will not be able to achieve profitability in the next one or two years. It will take time, and five years is a good time.
2. Reduce manpower. That being said, it is inevitable that manpower must be reduced. As at Dec 31, 2013, MAS has some 19,577 employees. Compare this with AirAsia, they have around 10,000 employees. It was also reported that currently, human resources chalk about 14% to 15% of MAS's total costs. That is quite a significant value. And furthermore, it was reported that MAS intend to cut its employee salaries by 30%. I think that is the right thing to do, besides reducing their manpower. If a company is profitable, then it can be translated into fat bonuses, and should be run to the red, then some sort of measures must be taken–the last which, if ever necessary, is to cut the salary of the employees, with the CEO's remuneration to be slashed the highest. I understand that the unison will totally disagree with this, but in order to be healthy, you need to go through some pain. Likewise, in order to see colourful rainbow, you need to face the rain, and in order for a mother to see a beautiful baby, it must go through the period of conceive. The reduction of manpower should be given via separation scheme, and not simply through random firing. 
3. Come up with a 5-year transformation plan. The new team must engage consultants or establish their own "lab program", much like PEMANDU, and draw a 5-year strategic plan. The plan, if deem fit, can be presented to the media. Hopefully, with this plan, MAS would return to profitability.

With all the arguments presented above, I urge all minority shareholders to accept the offer from Khazanah Nasional amounting to 27 sen per share.

And to Khazanah Nasional, I wish you all the best in your endeavor to bring the prestigious airline back to its former glory days!

Bank Negara Malaysia suggests ATM card for ASEAN

Folks,

This is interesting. In a recent speech by Bank Negara Malaysia deputy governor Dato' Muhammad bin Ibrahim (you can find the link here), he hopes for a one bank card for ASEAN.

“… I hope that one day we would have one card for ASEAN, where ATM cards issued by any bank in the ASEAN countries can be used to transact within the ASEAN region.”

Such a statement or rather an opinion is viewed quite strong, more so if it comes from an authoritative figure.

I think this would benefit us all. But the issue that needs to be tackled first, should we wish to proceed in having universal ASEAN bank card, would be security.

Maybe this idea would come to fruition one day.

I don’t think this idea will be impossible–in fact, it should not be discounted at all–especially the Asean Economic Community set to materialize next year.

Some key points which could also be found in his speech include:-

1. Some staggering 2.5 billion people across the world are still unbanked – that is, they have no banking account! Oh my.
2. The central bank wish to see that the number of cheques processed per year be reduced to 100 million by 2020 from 207 million in 2010. 
3. The central bank targets the per capital e-payment transaction from 43 in 2010 to 200 by 2020, and the per capital debit transactions from 0.6 in 2010 to 30 by 2020. I think this is a good move. Everyone is rapidly using internet (e-payment) to pay their bills, purchase things and perform many other transactions. Thus, it is heartening to see the target of 30 by 2020.
4. The debit card penetration is quite high, with 19.2 million “active” cards-in circulation, which is almost equal to the bankable population of 20.4 million adults. The word active here refers to at least one transaction via debit card per month.
5. Meanwhile, there are 5.5 million active credit cards, with per capita transaction of 11.3 last year.
6. What this means is that there are six credit card transactions for every one debit card transaction.
7. As at end-2013, Malaysia has a high mobile phone penetration of 144 per 100 inhabitants. As for broadband penetration, there are 67 per 100 households.
8. As at end-May 2014, there are 2,935 bank branches and 5,802 agents under the agent banking network nationwide. 
9. As for financial inclusion, he said that it is a “global agenda to ensure that all segments of the society, including the most vulnerable groups, have access and usage of quality and affordable financial services.” The focus to drive financial inclusion to the next level, via the use of e-payments include:-

• Correcting price distortions and promoting competition – Bank Negara has introduced “pricing reformm network”, where the price of Inter-Bank Giro (IBG) and cheques are aligned closer to their cost of production. For example, Bank Negara Malaysia has reduced the charge fee for online transaction from RM2 previously to 10 sen currently. This saw a significant improvement, where the IBG transaction volume grew at a higher rate of 45.6% on a year-on-year basis  for the first half of 2014 (1H14) compared to 12.4% for the same period last year. Likewise, cheques declined at a faster pace of 9.8% or 10 million cheques in 1H14 compared to 2% or 2 million cheques in 1H13. That is a lot of improvement, folks.

• Development and sharing of infrastructure investments -- the importance of collective industry efforts to develop and share infrastructure cannot be emphasised enough, he said. Infrastructure development is very expensive and the banking industry ought to share the required investments. It should not be used as a competitive tool but rather as an enabler that would promote modernisation of the payment system.

• Strengthening transaction security -- according to Muhammad, Malaysia is the first country in the Asia Pacific region to migrate from magnetic strip cards to chip-based payment cards. This transition, he said, was completed in 2005 despite the initial resistance by the industry. It had successfully eradicated cases of fraudulent skimming or counterfeiting of payment cards. The investment cost of RM200 million was recovered within two and a half years from fraud avoidance.

• Consumer protection and education

Have a read of his speech folks (click here).
I enjoyed it!

Exim Bank

Hey folks,

Now, I want to talk about Export-Import Bank of Malaysia Bhd, or fondly known as Exim Bank. Well, as the name suggests, Exim Bank is not any normal bank -- they don't take deposits from customers, hence they are not a retail bank. They don't offer credit cards or consumer products, but they deal mainly on the export and import aspect of the business.

In other words, they facilitate trade for Malaysian companies wishing to venture overseas. As mentioned in the previous post, I interviewed Exim Bank president and chief executive officer Datuk Adissadikin Ali, just a week before hari raya. The article was published in The Edge Financial Daily on Monday, 4 August 2014. The article refers below:

The article I wrote was further carried by Astro Awani in their television news.

(source: Astro Awani on its Youtube channel. Click here to view in Youtube)

Here is a bit about Exim Bank from my own analysis:

1. Shareholder Structure

Exim Bank is wholly-owned by The Ministry of Finance Inc., however, the bank reports and is being regulated by the Central Bank of Malaysia (Bank Negara Malaysia).

2. Mandate

The creation of the bank was mandated by the government. The mandate is as follows:

To provide credit facilities to finance and support exports and imports of goods, services and overseas projects with emphasis on non-traditional markets as well as the provision of export credit insurance services, export financing insurance, overseas investments insurance and guarantee facilities.

3. Credit Rating

The bank has a good credit rating of A- (by Fitch) and A3 (by Moody's).

4. Main Business

The bank offers both conventional and Islamic solutions. It provides trade financing and trade credit insurance and takaful (Islamic insurance).

In terms of coverage, the bank has business transactions and facilities for customers in 77 countries across 5
continents.

The presentation below outlines the area of business that Exim Bank is involved:

Source: Exim Bank

5. Financial Highlights

You can always refer to the annual reports to understand the financial performance of a particular organisation. However, it can be quite tedious reading annual reports, and below is the summary of the financial performance of the bank, in terms of revenue and net profit.

Financial Year	Ended Dec 31, 2013 (FY13)	Ended Dec 31, 2012 (FY12)	Ended Dec 31, 2011 (FY11)	Ended Dec 31, 2010 (FY10)	Ended Dec 31, 2009 (FY09)	Ended Dec 31, 2008 (FY08)
Operating Revenue	RM274 mil	RM185 mil	RM 172 mil	RM135 mil	RM212mil	RM223 mil
Interest Income	RM269.99 mil	RM217.17 mil	RM215.00 mil	RM173.47 mil	RM188.84 mil	RM224.26 mil
Net Interest Income	RM178.64 mil	RM149.38 mil	RM172.02 mil	RM137.70 mil	RM149.86 mil	RM175.47 mil
Operating Profit	RM202.85 mil	RM185.40 mil	RM184.49 mil	RM102.62 mil	RM145.38 mil	RM195.55 mil
Profit Before Tax and Zakat	RM190.25 mil	RM169.74 mil	RM146.36 mil	RM (299.57) mil	RM52.50 mil	RM13.00 mil
Tax	RM44.84 mil	RM45.54 mil	RM53.80 mil	-	RM25.56 mil	RM3.13 mil
Zakat	RM695,000	RM429,000	RM318,000	RM476,000	-	-
Net Profit	RM144.72 mil	RM123.77 mil	RM200.47 mil	RM (300.01) mil	RM26.95 mil	RM16.13 mil
Earnings Per Share (sen)	5.34	4.57	7.40	(11.08)	0.99	0.90

Source: Exim Bank annual reports

When analyzing the financial performance of the bank, you need to always be mindful of how the bank makes money. In this case, the bank makes money through the interest they charge to the customers. Hence, the more loans they disburse, the more interest they can charge and the more revenue they will make.

In the above table, look at the third and fourth row -- interest income and net interest income. These are crucial information on the income of the bank. You can learn about the concept of net interest income here.

6. Asset Quality

In banking, an asset is the loan that the bank gives out (lend) to other people. Hence, when give out loans, they must ensure that their asset is of the highest quality -- that is, the loans are paid on time, and provided to "quality" individual or corporations.

According to the Federal Deposit Insurance Corp (FDIC) in the US:

Asset quality is one of the most critical areas in determining the overall condition of a bank. The primary factor affecting overall asset quality is the quality of the loan portfolio and the credit administration program. Loans typically comprise a majority of a bank's assets and carry the greatest amount of risk to their capital. Securities may also comprise a large portion of the assets and also contain significant risks. Other items which can impact asset quality are other real estate, other assets, off-balance sheet items and, to a lesser extent, cash and due from accounts, and premises and fixed assets. (source: click here)

In general, the asset quality of the bank is determined by the non-performing loans and impaired loans, which is usually express as a percentage. The higher the value, the lower (and bad) the quality of the bank's asset.

Let us look at the asset quality of Exim Bank:

Financial Year	Ended Dec 31, 2013 (FY13)	Ended Dec 31, 2012 (FY12)	Ended Dec 31, 2011 (FY11)	Ended Dec 31, 2010 (FY10)	Ended Dec 31, 2009 (FY09)
Gross Impaired Ratio (excluding ECR)	15.2%	22.2%	35.6%	50.0%	42.5%
Net Impaired Ratio (excluding ECR)	8.2%	11.2%	18.1%	13.6%	23.8%

Source: Annual Report

As you can see, Exim Bank's asset quality was at its peak (50%) in FY10. But it had gradually tone down to some 15.2% as at FY13.

To achieve zero asset quality is almost impossible, thus, a banked told me that anything below 5% is actually quite good already.

7. Total Assets

Let us take a look at Exim Bank's total assets:

Financial Year	Ended Dec 31, 2013 (FY13)	Ended Dec 31, 2012 (FY12)	Ended Dec 31, 2011 (FY11)	Ended Dec 31, 2010 (FY10)	Ended Dec 31, 2009 (FY09)	Ended Dec 31, 2008 (FY08)
Total Assets	RM8.14 bil	RM7.26 bil	RM6.24 bil	RM5.60 bil	RM5.72 bil	RM5.54 bil

Source: Annual Report

Exim Bank aims to multiply its total assets to RM30 billion by 2018. This was expressed in its Phase 3 transformation plan:

Source: Exim Bank

8. Islamic Business

Exim Bank began its Islamic banking business in 2009. In 2011, Exim Bank introduced credit takaful facilities, which adhered to the Shariah principles. Let us have a look at the total Islamic assets for both Islamic business and Takaful fund:

Financial Year	Ended Dec 31, 2013 (FY13)	Ended Dec 31, 2012 (FY12)	Ended Dec 31, 2011 (FY11)	Ended Dec 31, 2010 (FY10)	Ended Dec 31, 2009 (FY09)	Ended Dec 31, 2008 (FY08)
Islamic Business Fund	RM1.78 bil	RM704.57 mil	RM347.83 mil	RM168.85 mil	RM101.56 mil	-
Takaful Fund	RM4.51 mil	RM1.94 mil	-	-	-	-
Total Assets	RM1.78 bil	RM706.51 mil	RM347.83 mil	RM168.85 mil	RM101.56 mil	-

Source: Annual Report

This is what Datuk Adissadikin said in his statement in Annual Report 2010:

In an effort to expand its customer base, Exim Bank is poised to tap the import market, particularly importers who are looking to re-export goods or buyers of strategic imports such as staple food items. This is an untapped market that offers promising prospects for the Bank going forward.

With the rise in demand for Shariah products, the Bank hopes to see more take-up of such offerings in the market. As the Middle East region continues to grow in importance for Malaysian exporters, the preference for Shariah financing, as well as trade credit Takaful is expected to grow too.

As can be seen from the table above, the total assets for its Islamic business recorded strong growth.

The table below shows the income statement of Exim Bank's Islamic business. Notice that both the revenue and profit jumped significantly.

Islamic Business Income Statement

Financial Year	Ended Dec 31, 2013 (FY13)	Ended Dec 31, 2012 (FY12)
Income from Islamic Banking	RM62.79 mil	RM25.48 mil
Net Income from Islamic Banking	RM56.77 mil	RM20.87 mil
Gross Premium Contribution (Takaful)	RM3.19 mil	RM1.28 mil
Net Income from Takaful	RM (398,000)	RM (442,000)
Total Islamic Banking and Takaful Results	RM56.37 mil	RM20.43 mil
Profit/(Loss) Before Tax and Zakat	RM33.68 mil	RM (6.33) mil
Zakat	RM (695,000)	RM429,000
Profit/(Loss)	RM32.98 mil	RM (6.76) mil

Source: Annual Report

9. Exposure

The bank is constantly exposed to several sectors and region. And one of the indicator used when speaking to Exim Bank folks is the industry or sector that they are exposed, along with the region.

The table below shows the loan and guarantee exposure segregated by the sector:

Loan and Guarantee Exposure by Sector (including impairment)

Financial Year	Ended Dec 31, 2013 (FY13)	Ended Dec 31, 2012 (FY12)	Ended Dec 31, 2011 (FY11)	Ended Dec 31, 2010 (FY10)
Manufacturing Including Agro Based	21.3%	16.3%	13%	22%
Property Development	12.1%	-	-	-
Electricity, Gas & Water Supply	11.4%	8.6%	1%	-
Construction	8.8%	26.7%	28%	46%
Government	8.5%	11.7%	13%	12%
Transport, Storage & Communication	7.0%	2.1%	3%	7%
Primary Agriculture	7.0%	6.7%	9%	-
Wholesale, Retail Trade, Restaurant and Hotel	6.1%	21.4%	33%	-
Export Credit Refinancing	5.8%	-	-	-
Mining and Quarrying	5.6%	5.7%	-	-
Finance, Insurance, Real Estate & Business Activities	3.7%	0.7%	-	-
Education, Health and Others	2.7%	-	-	-
Information Technology	0.1%	-	-	-
Tourism	-	-	-	5%
Others	-	0.1%	-	8%

Source: annual reports

In terms of regional exposure:

Financial Year	Ended Dec 31, 2013 (FY13)	Ended Dec 31, 2012 (FY12)	Ended Dec 31, 2011 (FY11)
Malaysia	34.2%	28.1%	42%
East Asia	31.6%	35.0%	33%
Central Asia	3.4%	4.6%	-
South Asia	2.1%	5.2%	6%
Oceania	6.5%	5.0%	2%
Middle East	6.6%	9.3%	5%
Africa	3.7%	4.1%	5%
Europe	10.4%	7.1%	5%
Americas	1.4%	1.6%	2%

Source: annual reports

With the Asean Economic Community scheduled to be introduced next year, Datuk Adissadikin said that the focus will remain strongly in Asia but will have some diversification elsewhere too.

10. Transformation Plan

When Datuk Adissadikin was appointed to head Exim Bank in September 2010, he came up with his transformation plan to propel the growth of this bank forward. The transformation plan are divided into three phases (as for now):

• Phase 1 - "Putting the House in Order" - 2008 until 2010
• Phase 2 - "Accelerating Growth" - 2011 until 2012
• Phase 3 - "Realising the Vision" - 2013 until 2018

Source: Exim Bank

Phase 1 was interesting. I remember Datuk Adissadikin told me that Phase 1 is about "cleaning up the mess in the bank." This is what I actually admire him -- he is a no-nonsense man, and he does not mind talking about the bank's painful history. This phase of transformation was where the bank took corrective action to stop its loan from bleeding badly (as reflected from its non-performing loans). As aptly stated in the presentation above, this phase is where the bank was building foundation for growth. Notice that Phase 1 of the transformation plan occurred during the global financial crisis.

Enter Phase 2, where the bank reconfigured business model and organisational framework. In this phase, the bank took many steps to improve its risks: operation and market. 

In Phase 3, the bank aims to remain relevant and amplifying significance, which means that I constantly strive to achieve the best and distinguish itself from other commercial bank. 

With these transformation plans in place, I have no doubt in Datuk Adissadikin's leadership to steer the bank in the right direction.

And interestingly, all of its annual reports are given specific name, possibly to reflect what had happened during a particular year, or its outlook.

• 2009 - Taking on the global challenge with you
• 2010 - Internal Strength, Global Outlook
• 2011 - Spreading Our Horizon
• 2012 - Transcending Beyond
• 2013 - Going the Distance

11. Going Forward

In an interview with me a while back, Datuk Adissadikin is very bullish on the potential growth of the banks.

He outlined below the strategic direction that the bank will be embarking.

Source: Exim Bank