Government may end Puspakom monopoly

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THE government is working to appoint more companies, and thus open up the market, for the computerised inspection of commercial, public and private vehicles, auto industry sources say.

It is understood that a clutch of government-linked companies and bumiputera-owned auto firms could be awarded individual concessions to undertake the work.

Some of the names said to be under consideration are the Naza group — which is owned by the family of the late Tan Sri SM Nasimuddin SM Amin — as well as Sime Darby Bhd and UMW Holdings Bhd. The latter two are controlled by state-owned Permodalan Nasional Bhd. These prospective candidates have extensive auto businesses under their belts.

A check with one of them, however, reveals that the companies have not been formally approached as yet, but are aware of the plans to open up the vehicle inspection business.

“It (the opening of the vehicle inspection market) has been talked about for some time now, but the plans this time around seem to be better thought out, and hence could be better received,” an industry player says.

The move is also understood to be aimed at placating parties complaining about the monopoly by Puspakom Sdn Bhd, a wholly-owned subsidiary of DRB-Hicom Bhd authorised by the government to undertake computerised vehicle inspections.

Puspakom was awarded a 15-year concession in 2009.

With 55 inspection centres and 28 inspection sites nationwide, it performs more than three million inspections annually. Apart from the concession, it inspects hire purchase and imported vehicles, as well as private vehicles, mainly passenger cars, that come in for voluntary inspection.

This monopoly has irked many bumiputera entrepreneurs, who want this service sector to be opened up.  

However, this is also not the first time the government has sought to break the monopoly.

“About five years ago, there was such a move, but somehow it didn’t happen. Puspakom beefed up its outlets and upped its game, and everything — all the complainants — went silent,” a source says.  

The beauty of the business is the relatively low capital outlay involved. For instance, Puspakom’s last branch, opened in November 2012 in Pekan, Pahang, was set up at a cost of RM3.5 million and has the capacity to inspect up to 150 vehicles a day.

While the inspection centres in urban areas may have higher set-up costs, Puspakom, nevertheless, is getting decent returns. 

According to the Companies Commission of Malaysia, Puspakom posted an after-tax profit of RM8.9 million on revenue of RM143.8 million for its financial year ended March 31, 2014. It paid out RM9.5 million in dividends.

As at March 31, 2014, it had non-current and current assets amounting to RM147.4 million and RM23.2 million respectively. Its short-term debt commitments stood at RM62.5 million and long-term borrowings, RM29.6 million. The company had reserves of RM58.4 million.

According to DRB-Hicom’s annual report, Puspakom registered a 2.1% increase in the number of new commercial vehicles inspected last year to 97,000 units compared with 2013.

Commercial vehicle inspections under the concession contributed 83% of Puspakom’s total revenue in FY2014, with the main income earner being mandatory routine inspection (56% of revenue).

Commercial vehicles are required to undergo a routine inspection at Puspakom every six months as part of the Road Transport Act 1987.

Hire purchase inspection, meanwhile, made up 59% of the non-concession business.

DRB-Hicom’s annual report states that although the total industry volume of the auto sector is expected to decelerate from an average growth of 5% in 2009-13 to 2% over the next few years up to 2018, Puspakom is looking to leverage the focus of the National Automotive Policy on road safety and create a new income stream from the voluntary inspection of passenger cars. But the diversified group did not furnish any details.

However, for a conglomerate of DRB-Hicom’s size, the impact of competition from more inspection centres being opened is unlikely to trouble it.

For its financial year ended March 31, 2014, DRB-Hicom posted a net profit of RM456.8 million on revenue of RM14.2 billion, which translates into earnings per share of 23.6 sen.

Among the assets under the group, which is 56% owned by businessman Tan Sri Syed Mokhtar Albukhary, are Bank Muamalat Bhd, Pos Malaysia Bhd and Proton Holdings Bhd.

Nevertheless, for the three prospective players, it would seem like a worthwhile venture in view of the low capital expenditure involved.

Naza already has a thriving auto business with its flagship Kia cars, as well as the Peugeot, Chevrolet and Citroen brands.

Sime Darby has a host of brands such as Ford, Hyundai, Land Rover, Porsche, BMW and MINI, as well as the Hertz car rental business.

UMW manufactures, assembles, markets and distributes Toyota vehicles; markets and distributes Toyota’s upmarket offering, Lexus cars; and assembles Hino and Daihatsu commercial vehicles. It is also the largest shareholder in Perusahaan Otomobil Kedua Sdn Bhd with 38% equity interest.

 

This article first appeared in The Edge Malaysia Weekly, on January 26 - February 01 , 2015.