Frankly Speaking: Jan 11-17, 2010

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The world is watchingWhen a divisive issue like the controversy over the use of the word “Allah” by non-Muslims surfaces, a mature society would firstly move to bring together the different religious communities to reinforce the bonds that hold all its citizens together.

Leaders in all spheres, such as the heads of the various religions, the head of government and opposition leader, community leaders and leading lights in civil society, humanists and sometimes even prominent people in the arts and sciences would send out messages that emphasise the common values that people of all faiths share. They would also stress on the preservation of law and order, protection of basic freedoms and recall the high ethical and compassionate values that inspire humanity in times of trial.

In these societies, when the people freely express their feelings, it sometimes leads to violence and hate crimes. The police and other security forces can be relied upon to act without hesitation to protect the public and prevent attempts to intimidate legitimate dialogue.

Because of these actions by the people at the helm, all sections of society, including the business community, feel reassured that the social order is intact. The people know that they can go about their daily business with confidence that they will be protected and unruly elements will not be allowed to run riot.

Today, Malaysia is facing a grave test of its maturity as a society, which will be decided by how well the powers that be measure up to the standards of a modern democratic nation.

Some leaders have shown that they have the mettle to stand up to jingoism, while others appear to be pandering to a baser calling. The people, in their wisdom, will choose who they want to support. For better or worse, some will speak their minds, while many will stay silent and hope they can carry on with their lives, unswayed by the strong feelings that can arise.The world, including foreign investors, is watching how we respond.

Poh Huat’s erroneous guidanceInvestors look to the official guidance of listed companies to aid in their assessment to buy or sell the shares. The guidance should therefore be validated later by the actual financial results.

It was therefore with consternation that investors read that Poh Huat reported a loss in 4QFY2009 ended Oct 31 after having guided for a higher profit.

The furniture maker had reported a pretax profit of RM3.4 million for 3Q. That is good along with its earnings per share of 3.8 sen for that quarter, considering its share price then was 54.5 sen. That was good enough to have drawn some value investors into the stock.

The company encouraged investors to form a positive view of its prospects. It said in notes to its 3Q results that it “experienced meaningful improvement in our order books”. Poh Huat added it looked “forward to better performance for the remaining quarter of the financial year”.

Instead of a better performance, however, it reported a much lower pretax profit of RM395,000 and after a tax charge of RM1.8 million, it incurred a loss of RM1.4 million.

When the company guided for an improved performance in September, it was the second month of its financial 4Q. It did not make clear what occurred in the third month (October) of that quarter that altered its performance from an expected improvement into a deterioration into the red. The stock has since dropped to 47.5 sen despite the bullish market.

Companies should be more careful in providing guidance because misguided investors suffer losses when they make investment decisions on company-issued comments that later prove to be untrue.

Open up raw sugar importsFor more than 40 years, Malaysia’s sugar king was Robert Kuok. He not only controlled supply in Malaysia but was said to have had control of over some 10% of the world sugar market.

Last year that changed. Felda Holdings is now the new sugar king after acquiring Malayan Sugar Manufacturing Co Bhd from Kuok’s flagship company in Malaysia, which is PPB Group Bhd.

Apart from MSM, Kuok group also disposed of its interest in Kilang Gula Felda Perlis Sdn Bhd and Tradewinds (M) Bhd that owns Central Sugar Refinery. Effectively, Kuok group does not have any interest in the sugar business in this country.Coincidentally, just two months after the announcement on the change in ownership, the government announced an increase in the price of sugar by 20 sen for every kilogramme. This was done on the grounds that international raw sugar prices had gone up significantly.

Indeed, international raw sugar prices are hitting record levels due to the poor harvest in producing countries such as India and Brazil. That nobody can doubt.

To keep prices stable, for the first time, the government had to fork out some RM720 million last year in subsidies for the import of raw sugar. The subsidy is expected to increase this year, something which the government can ill-afford.

Considering the increasing subsidy that the government has to fork out to purchase raw sugar, isn’t it time to liberalise its import?

At the moment only the four sugar refineries in Malaysia are allowed to import raw sugar. Why not liberalise this segment of the market? Why confine the import of raw sugar to selected parties only?

By opening up, the benefits could be bountiful. If a third party such as Kuok group is allowed to import raw sugar for refiners, the pricing could be cheaper as the Sugar King has economies of scale.

This article appeared in Capital page, The Edge Malaysia, Issue 788, Jan 11-17, 2010