Business

Monday February 16, 2009

Food and mobile phone sectors thriving despite economic woes


AT a time when consumer spending is expected to slow down, two sectors seem to indicate they may be relatively resilient – food and beverage (F&B) and mobile phone communications.

These are, of course, staple consumer items as opposed to discretionary goods and services, and they have similar demand patterns with that of the “sin sectors” – gaming, beer and tobacco.

F&B has always seen stable demand while the relatively new mobile phone industry has shown steady demand in most countries.

In the F&B space, Fraser & Neave Holdings Bhd (F&N) reported last week a 14% rise in net profit to RM50.9mil in its December quarter, prompting it to add more fizz to its dividends.

That would also point to steady revenue at Kian Joo Can Factory Bhd which is in the support industry, supplying cans for beverages and beer. The company had reported firm double-digit earnings growth for its September quarter, and is likely to reveal better-than-adequate results for the December quarter.

In the mobile phone sector, DiGi.Com Bhd last week announced a set of results of stable revenue and earnings.

Related report

Wireless industry feeling resistant to downturn

BARCELONA: Chances are, you have a mobile phone in your pocket or your purse.

That it one reason the wireless communications industry is feeling more bullish than most in these tough economic times.

"I do think that mobile phones are so much a part of people's lives, it is more resilient compared to other parts of the economy," said Margaret Rice-Jones, CEO of AIRCOM, a network consulting company.

"People need to eat, so food stores are doing well. People get sick, so health care is doing well. People need to communicate, so telecoms are doing well."

Where to bet on the future of the industry is very much in the air in Barcelona, where an expected 50,000 industry officials from major cell phone makers, telecom companies and high-technology firms are converging for an annual four-day Mobile World Congress that opens Monday.

The wireless industry is not immune to the downturn.

Handset operators from Nokia to Motorola are cutting jobs.

So is chipmaker Intel and software giant Microsoft.

Given the fact so many people already have cell phones in their pockets, analysts say handset sales could drop by as much as 20 to 30 percent this year.

And, critically to a technology-driven industry, investment is slipping, according to a survey of the industry's top 100 CEOs by the mobile phone industry's trade association GSMA.

The realities of the world economic slowdown are likely to make this year's Barcelona gathering less visionary than in the past, Rice-Jones said.

"It is the way the industry wants to see itself in two years time. It is sort of projecting that image of the future where everybody would like to see the industry moving, be it devices, applications, infrastructure," Rice-Jones said.

This year, she expects the presentation to be more near-term, from now into next year. So what makes the mobile industry think it can ride out the global economic crisis in relative safety?

One source of the optimism is the smart phone revolution is only getting under way.

Worldwide, only about 11 percent of phones are smart phones, ones that combine phone telephony with the functions of a PC.

Market-research firm IDC anticipates that the market share of smart phones will increase to 14 percent in 2009 - from 130 million sold in 2008 to 171 million this year - even as the overall market shrinks.

Lars-Christian Weisswanger, a European executive for HTC handset maker, said there is no question that smart phones will drive future trends.

"Until now, the mobile market was like a pyramid. There were lots of low-end mobiles sold, somewhat fewer feature phones in the middle price range, and just a few smart phones at the top. Now the pyramid is going to be turned like an hour glass, because more and more smart phones are going to be sold," Weisswanger said.

John Strand of Copenhagen, Denmark-based Strand Consulting, calls 2009 "the moment of truth" for the mobile communications industry to see which companies really delivery on the hype of a unique solution.

Analysts and industry insiders expect market consolidation and big-brand partnerships, even if it doesn't emerge at the mobile congress or in the coming months.

What to watch for at World Mobile Congress 2009:

_One of the open questions from last year's gathering was the future of the operating system sector. Will it consolidate or will the players - including Microsoft, Symbian, Linux-based OS from Android, and the industry consortium LiMo - continue to dig in. Rice-Jones said, "Once you get a shrinking (handset) market, it puts more pressure on multiple platforms."

_New Android models: Google launched its first Android last year, but it is available in only a few markets. Analysts are expecting more. Strand said, "Google is talking and talking and talking about Android, but there are no phones. If you compare Android to the Google search engine, it is equal to a Web site where it says 'Google' but there is no place to put a search request."

_Mobile advertising: Has been heralded for years, and it still not has arrived on cell phone screens in any revolutionary way. Strand said that is because it costs too much to deliver an ad to a mobile phone user. But some industry watchers say keep an eye out for some movement there.

_Brand, brand, brand. "There will be a lot of name dropping this year. Strong brands looking for equally well-placed partners creating a sort of "telecommunications commune," Strand said.

Courage and controversy

BY C.S. Tan

ON websites across the causeway, the recent announcement that Ho Ching will resign as CEO of Temasek Holdings Pte was linked to the state-owned investment company’s losses.

She is the wife of Singapore’s Prime Minister Lee Hsien Loong. Adding spice to the flavour, or perhaps to provide distraction, it was also announced that an American, Chip Goodyear, will become Temasek’s new CEO in October.

Senior Minister Lim Hwee Hua said in parliament last week that the value of Temasek’s investments fell 31% in the eight months from S$185bil on April 1 to S$127bil on Nov 30 last year, a drop of S$58bil.

She said the Government of Singapore Investment Corp (GIC) also experienced a decline in the value of its investments, but she did not disclose any numbers.

Media reports speculated the losses at GIC, which manages Singapore foreign exchange reserves of over S$100bil, could be even larger than that at Temasek.

However, the focus fell more on Temasek’s performance because Ho is its CEO. In parliament, Lim defended Ho, saying the 31% drop in Temasek’s portfolio value was not worse than the MSCI Asia ex-Japan Index which plunged 44% during the same period.

That’s a valid point and she might have added most portfolio funds anywhere in the world dropped in value by that margin.

Ho was blamed on websites for Temasek’s investment of billions in Merrill Lynch & Co which subsequently lost most of its market value.

Interestingly, GIC, which is not managed by her, also invested billions in Western banks – Citigroup and Switzerland’s UBS.

Goodyear’s appointment – he will be the first foreigner to head Temasek – also stirred a lot of debate. He was previously CEO of Australia’s BHP Billiton, the world’s biggest mining group.

A common thread in Goodyear’s appointments in BHP and Temasek is that both Australia and Singapore handpicked him as a foreigner to head large corporate entities in their respective countries.

Whether his later performance justifies his appointment is another issue.

These two countries are willing to hire the best candidates in their judgment, regardless of race or nationality.

Their objective is to attempt to achieve the best performance. In this regard, Malaysia is still distracted by issues of race and nationality instead of seeking the best candidates.

The risk here is that on average and in the long term, Australia and Singapore will achieve top performance, while Malaysia will achieve less than the best.

A top glove maker

NEWLY-LISTED Hartalega Holdings Bhd continues to live up to its promise as a rubber glove manufacturer with good earnings growth and the industry’s highest profit margins.

The company announced on Friday it made a net profit of RM22.2mil in the December quarter, up 119% from the corresponding quarter last year.

It is also an improvement over its September quarter last year when its earnings were RM18.4mil. The December quarter’s results included foreign exchange gains and an insurance compensation totalling RM4.6mil.

Stripping that out, the earnings in the December quarter were about equal to that of the September quarter, both of which were robust results.

Hartalega’s net profit margin is about 16%, far higher than the average of 6% in the industry.

In addition, its quarterly earnings now exceed those of Kossan Rubber Industries Bhd, currently still rated by analysts as the second largest industry player.

In any case, most of the big glove makers are plying a brisk business in view of strong demand in the healthcare industry.

Hartalega, listed on the Bursa Malaysia main board in April last year, is still not researched by many brokerages but it is expected to draw more interest this year.


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