On behalf of the Board of Directors of TA Enterprise Berhad, I am
pleased to present the 23rd Annual Report and Financial Statements
of the Company and the Group for the financial year ended 31
The Group reported slightly weaker FY13 results with profit before tax easing to RM132.7 million, a 10.7% decline compared to RM148.6 million registered for the financial year ended 2012. Despite stronger revenues, which accelerated by some 10.9% year-on-year (YoY) to RM772.3 million – coupled with sharply higher contributions of RM53.8 million versus RM43.1 million in other income, the Group's net profit attributable to shareholders stood at RM83.8 million, a decrease of 15.7% from RM99.3 million in the previous financial year. Earnings per share declined to 4.9 sen from 5.8 sen while return on shareholders' equity slipped to 4.9% in financial year 2013 from 6.2% in financial year 2012. The fall in net profit was due to a 17.7% or RM98.9 million surge in operating expenses (mainly attributed to allowance for impairment loss on receivables, hotel operation cost and cost of properties sold), followed by a 12.8% or RM3.8 million increase in finance costs. A first and final dividend of 2.0% (less 25% taxation) for financial year ended 31 January 2012, amounting to RM25.7 million was paid on 9 August 2012.
The Broking and Financial Services Division registered a 34.1% YoY decline in the net segment results despite the listing of several mega IPOs lifting average market capitalization to RM1.39 trillion between Feb 2012 and Jan 2013, compared to RM1.28 trillion in the previous corresponding period. Trades were weaker as the average daily value traded on the Bursa between Feb 2012 and Jan
2013 dipped 3% to RM1.59 billion from RM1.64 billion. Similarly, average daily trading velocity eased to 30% from 33% in the
corresponding period a year ago. This segment accounted for approximately 19% of the Group's operating profit. The Credit and Lending Division's net segment results reported a decline of 58% due to lower revenue and higher impairment loss recognised on financial receivables.
On the real estate front, the Hotel unit continued to register solid improvement as the net segment results surged to RM89.4 million from RM77.1 million. This was boosted by contribution from the newly acquired Movenpick Hotel in Thailand. Net segment results contribution from Property Investment reversed last financial year gains and contracted 9.2% YoY to RM16.7 million from RM18.4 million as a result of lower development management fee. The Property Development Division however, reported net segment results of RM26.4 million, an encouraging 73% YoY improvement compared to RM15.2 million. The increase was mainly contributed by the on-going development projects in Damansara Avenue and a 4.7 percentage point improvement in operating margin.
The Board is recommending a first and final dividend of 1.80% less taxation, which translates into a payout ratio of 60%, for the financial year ended 31 January 2013 for shareholders' approval.
OPERATIONS REVIEW AND DEVELOPMENT
TA Securities Holdings Berhad ("TASH") recorded a lower pre-tax profit of RM18.1 million for the financial year under review as compared to RM32.6 million in the preceding financial year. The performance was affected by the lower trading value on Bursa Malaysia Securities Berhad which declined to RM815.3 billion compared to RM840.9 billion in the previous corresponding year. In addition, the lower brokerage rates and increasing operating costs arising from the continuing stiff competition in the stockbroking industry also impacted the profitability. Global financial markets have shown improvements but markets remain vulnerable to setbacks and changes in sentiments along the way.
The resilience in domestic demand aided by supportive macro policies plays an important role to ensure that the Malaysian
economy withstands the adverse impact arising from the economic weaknesses in the more advanced economies. Domestic demand will continue to become the main driver of growth.
Earnings will continue to be affected by the capital market sentiment and challenges in Malaysia. We will continue to expand our branch network in strategic locations and further improve on our infrastructure to enhance our revenue and earnings. Our latest branch in Melaka commenced operations in January 2013.
TA Securities (HK) Limited posted an operational loss of HK$2.69 million for the year ended 31 January 2013 mainly due to lower brokerage, reduced margin financing income and higher operating costs for the year. Competition in the local securities industry is expected to intensify with local based financial institutions offering very thin rates. We shall continue our recruitment drive to enlarge our sales team and clientele base with the increasing usage of internet trading by retail investors.
UNIT TRUST AND ASSET MANAGEMENT
For the financial year ended 31 January 2013, TA Investment Management Berhad ("TAIM") has total assets of RM740.08 million, being a combination of unit trust funds and direct mandate portfolios under its management. TAIM launched the TA Total Return Fixed Income Fund ("TRFIF") a feeder Fund which feeds into PIMCO Funds: Global Investors Series plc – Total Return Bond Fund (SGD Hedged) ("Target Fund"). PIMCO is one of the largest bond managers in the world with an expert
management team in managing the funds' performance in both bull and bear markets. The Fund aims to maximize total returns through prudent investment management and preservation of capital by investing at least two-thirds of its assets in a diversified portfolio of fixed income instruments of varying maturities. Our plan for year 2013 is to launch 5 new Funds, out of which 2 are currently being finalized. We will closely monitor the Funds' performance in order to achieve above average returns. The existing investment processes and strategies will be reviewed and enhanced continuously. As part of our business expansion strategy, our agency team will continue to focus on the development of our distribution channel. This shall include mass recruitment of agents for our newly opened servicing branches in Ipoh and Melaka. We will also be actively promoting the private mandate business via the managing of assets for high net worth individuals.
TA Futures again won the Bursa Malaysia Berhad's Top Commodity Futures Broker award for 2012. The company collected the same award in 9 out of the last 10 years. Trading volume on Bursa Malaysia's derivatives market increased by 14% over that of 2011 with TA Futures' volume increasing by 24%. Nonetheless, the higher volume did not translate into higher profits as it was mitigated by stiff competition in terms of brokerage rate among trading participants. Thus, although the revenue surged by 20.5% to RM10.2 million, the audited profit before tax and after tax contracted by 7.2% and 7.6% to RM3.7 million and RM2.8 million respectively.
Looking ahead, weather uncertainties, volatile stock markets and fragile economic conditions in some countries will encourage hedging and speculative activities in the derivatives market. Bursa Malaysia has upgraded its operations infrastructure which is capable of handling higher volumes with more efficiency. Their latest branching concept is designed to pave the way to greater retail participation in futures trading and we expect higher revenue for financial year 2014.
CREDIT AND LENDING
TA CAPITAL SDN BHD
TA Capital Sdn Bhd's financial performance in financial year ended 2013 improved significantly, contributing to 7.9% of profit before tax to TA Group.
TA Capital Sdn Bhd achieved a much higher revenue from Initial Public Offering ( IPO ) financing provided to investors for new corporations listed in Bursa Malaysia in year 2012 , Employees Share Option Scheme ( ESOS ) financing and also short / medium term loan financing extended to corporations for working capital and investments. This resulted in a higher pre-tax profit of RM3.69 million for the financial year ended 2013.
As many big cap companies like Iskandar Waterfront Sdn Bhd, 1Malaysia Development Berhad (power business) and Air Asia X are aiming for floatation on Bursa Malaysia this year, business opportunities are enormous and we are optimistic about our earnings
growth prospects in financial year 2014. As global markets are flushed with liquidity, we believe there will be strong appetite for quality IPOs from foreign and local investors given that Malaysia remains high on many investment funds' radar. With investor confidence in our country's growth prospects and thanks to various domestic economic activities generated by the Economic Transformation Programme, these IPOs are set to attract strong demand that would lift our bottom line.
We will complement our stock broking business by providing corporate lending and financing for private placement, rights issue exercises and share investments for our clients. Our main focus is to provide support services to clients, remisiers and our subsidiaries through ESOS financing, providing short and medium term loans to business enterprises and individuals for working capital and share investment purposes.
The property market remained neutral in 2012 despite the Euro zone financial crisis and prevailing economic weaknesses in US. Property transactions slowed down in the 1st half of the year due to the responsible lending guidelines introduced by Bank Negara Malaysia. We expect property demand to pick up with the kick-start of the Klang Valley Mass Rapid Transit ("KVMRT"), with speculative activities and strong buying interest from local and foreign investors on the back of a vibrant economy and accommodative monetary policy.
Damansara Avenue, Bandar Sri Damansara
Damansara Avenue is a mixed commercial development on 48 acres of freehold land at Bandar Sri Damansara with a Gross
Development Value (GDV) of RM3.8 billion. TA Binaprestij, the main contractor is currently constructing 2 tower blocks named Azelia – an 8 storey apartment building block of 43 units and a 28 storey block of 207 units. To-date 90% of the units have been sold and expected completion is in mid 2014. Ativo Plaza which is a part of this development comprises of office suites, lifestyle retail units and designer duplexes achieved 97% sales since its launch in July 2010 is nearing completion. The next project Phase 1F, comprising of 979 units of Small Offices Flexible Offices (SOFO) with GDV of RM370 million will be launched at the end of 2013.
Mixed Development in Puchong
TA Global via its subsidiary, TA Properties Sdn Bhd entered into a Joint Venture (JV) with a 25% interest to develop 92 acres of leasehold land in Mukim Daerah Sepang. This premium lifestyle development has an estimated GDV of RM596 million and
comprises 98 units of 2.5 and 3 storey super link terrace houses. Nusa Lagenda - Bandar Saujana Putra TA Global via its subsidiary, TA Properties Sdn Bhd entered into a JV with a 50% interest with Prominent Xtreme Sdn Bhd to develop 255 units of apartments on 2 parcels of land in Bandar Saujana Putra, Selangor. The project is known as Nusa Lagenda and the GDV
is RM99.5 million.
TA 3 & 4 - Mixed Commercial Development opposite KLCC
The development of two iconic 50 storey buildings comprising a luxury hotel and branded serviced residences with a 4-level podium of retail, F& B outlets and lifestyle facilities will take place on a 2.47 acre land known as TA 3 & 4, strategically located along Jalan
P Ramlee, Kuala Lumpur, just across the world renowned KLCC Twin Towers. The GDV of the project is approximately RM1.376 billion. The residences will be the epitome of luxurious living and the hotel, a model of world class hospitality and construction will adopt green initiatives. The building plan is pending approval and earthworks are expected to commence in the last quarter of this year.
The Gardens - Richmond
The Gardens is a comprehensive master planned urban village in the heart of Richmond, British Columbia. The 1st phase consists of 2 apartment blocks named Azalea and Magnolia containing 90 and 92 units respectively. The GDV amounts to C$85 million and the development comes with an indoor amenity centre, a grocery store, commercial retail space and a free standing restaurant.
1151 West Georgia - Vancouver
On 14 March 2012, TA Global entered into an Umbrella Deed with Birkbeck Trust to set out the framework to develop 1151 West Georgia with a contribution of C$110 million each. The partnership is synergistic as the location is strategically adjacent to Fortis BC Centre, our 24- storey corporate building in downtown Vancouver.
1151 West Georgia is an iconic 63-storey mix-use development of a luxury hotel tower with 147 rooms, 218 high end residential units, a 4-level podium housing the hotel's amenities and a 8-level underground parkade. Construction commenced in July 2012 with expected completion in mid 2016 and the projected GDV is C$496.4 million. On 26 March 2013, several relevant agreements were entered with Donald Trump's organization to develop and to operate the hotel
and residences at 1151 West Georgia to be named "TRUMP INTERNATIONAL HOTEL & TOWER® VANCOUVER". On completion, 1151 West Georgia will be one of the world's most recognizable hotel and residence managed by a leading luxury hotel management firm.
AUSTRALIA - Little Bay Residential Development Project, Sydney
Little Bay is a landmark residential development and management project in one of Sydney's last prime coastal areas. This
AUD600 million master planned Little Bay Cove community offers more than three hectares of open space and an approximate 570 units of dwellings, comprising of house lots, townhouses and apartments, many with coastal views. The maiden development of a 45-unit luxury apartment named "Solis" at Little Bay has successfully achieved 100% sales.
MALAYSIA - Menara TA One, Kuala Lumpur
The current occupancy rate of our corporate headquarters declined slightly from 93.22% to 90% while the average rental rate decreased 2.48%.The decline is attributed to the downsizing of office space by certain tenants because of the economic slowdown and static increase in rental rates in view of refurbishment works at Menara TA One. The building is undergoing a major facelift costing RM20 million and includes upgrading works, roof re-designing, new F& B outlets and various enhancements. Renovation works will commence in July 2013 and is expected to be completed by October 2014.
Meanwhile the retail and office suites at Subang Business Centre and Taipan USJ continue to enjoy 100% occupancy and to
generate consistent rental income for the Group.
CANADA - FortisBC Centre in Vancouver
The average rental rates of our Triple-A rated office tower FortisBC Centre in Vancouver increased by 1.6% per square feet in 2012. Expected increase in rental leases in 2013 will have a positive impact on the property's revenue and average rate. Its vacancy rate of 1.28% surpasses that of other AAA class buildings in the vicinity which registered vacancy rates of between 3% and 3.8%. For year 2012, FortisBC Centre chalked up an increase of 5.8% in revenue by reaching C$17,049,427 compared to C$16,121,939 in 2011.
THAILAND - The Movenpick Resort & Spa, Karon Beach, Phuket The Movenpick Resort & Spa is the latest addition to our group of hotels. It is a 5-star luxury resort with its prime location, spectacular ocean view and impeccable Swiss service that caters even to the most discerning traveller. Despite the global economic downturn, the Resort continues to thrive with
clientele from price sensitive markets such as China, Asia, India and Russia, yielding a total revenue of THB656 million with an average occupancy of 78%. Movenpick was named among the Best Family Resorts around the world by
TripAdvisor and received a renewal of the Green Globe Certification.
Radisson BLU Plaza - Sydney
Radisson BLU Plaza performed reasonably well in 2012 with an increase of 2.3% year-on-year (y-o-y) in the Average Daily Rate (ADR) despite easing of occupancy rate due to a decline in business travel to Sydney. Room occupancy increased from 84% to 86% despite many challenges, one of which is the stiff price war. A number of key hotel developments located outside the Central Business District (CBU) will not be completed until 2015 and occupancy rates are expected to increase until the end of December, 2015
The Westin – Melbourne
While revenue declined in year 2012 despite a slight increase in occupancy, the gross operating profit rose 2% . The revenue per available room (RevPar) of Westin has once again claimed the top spot, continuing its success in an extremely competitive environment. Room rates are forecasted to improve over the next 3 years, indicating healthy growth in room yields.
A slowdown in demand from China for Australian exports has impacted the economy and coupled with the high exchange rate of the Australian dollar, competition in Melbourne intensified with significant price discounting to drive occupancy.
SINGAPORE - Swissotel Merchant Court
The hotel saw an increase in revenue of SGD2.1million and registered a high occupancy of 89.7% for 2012.The RevPar increased by 5.4% compared to year 2011, largely attributed to a hotel room shortage in Singapore. Several new hotels are in the pipeline over the next few years putting pressure on the hotel's current ADR. In order to defend its position and to remain competitive, upgrading and refurbishing plans will be implemented in 2014.
CHINA – Swissotel, Kunshan
The hotel struggled to meet its budget particularly in room sales during the first few months of 2012 due to the ongoing
China-Japan crisis. Despite many setbacks, Swissotel Kunshan managed to finish the year ahead of competitors with a RevPar reading of 1.33 and achieved 57.9% occupancy which is 15% better than its nearest rival. The city of Kunshan will be hosting the World Cyber Games and at least 4 major investment or trade fairs in 2013 which will bring new businesses to all hotels. The new performing arts centre will help boost the hotel's performance for 2013 as it has been contracted to provide accommodation for the visiting performers
CANADA- Aava Whistler
The recovering global economy and travel demand, favourable weather conditions, a robust event calendar and strong marketing campaigns helped to stimulate bookings from regional and destination markets in 2012. While remaining mindful of economic uncertainties from key market areas, bookings during winter were very strong and will further improve with careful price points.
PROSPECTS AND OUTLOOK
The domestic demand, accommodative monetary policy and various economic transformation programmes contributed to a 5.6% GDP growth in 2012, which was better than consensus expectations. In 2013, the Malaysian economic performance shall continue to be driven principally by the Government's project initiatives and public and private investments under the ETP. No doubt, the economy will still be vulnerable to the international environment, especially development of the Eurozone crisis and the debt troubles in US. However, growth momentum in the medium term is sustained by continued strong domestic demand, recovering commodity prices, favourable interest rate environment and low inflation.
While the catalytic projects undertaken in various economic corridors and the multibillion investments going into those projects provide ample job opportunities and steady income flow for many, the corresponding demand for capital and fund raising activities in the capital market are expected to translate into flourishing activities in the domestic equity market. Combined with removal of political overhang post 13th general election and the sustained capital flows from abroad due to strong liquidity, thanks to ultra-easing undertaken by many key central banks around the globe, the Malaysian stock market is expected to face another exciting phase of activities. The impending floatation of some large IPOs like Iskandar Waterfront Holdings Sdn Bhd and 1Malaysia Development Berhad's power assets would provide the added adrenalin to woo foreign investors to Malaysian shores while creating opportunity to undertake various equity capital market activities. This bodes well for our financial services and should contribute positively to our financial year 2014.
We expect the Malaysian property market to remain vibrant in 2013 underpinned by strong demand for real estate around the growth corridors and rising affluence among middle-class population. The relatively low mortgage rate is an added catalyst. With a sizeable land bank at strategic locations in the Klang Valley, we are optimistic in seizing the prevalent growth opportunities to enhance our income.
On the external front, economic data suggests better prospects in 2013. In British Columbia, Canada, economic growth is
forecasted to be slightly stronger in 2013 due to increased non-residential investment and consumer spending partly offset by a weaker global outlook. Employment and population growth as well as continued low mortgage interest rates in British Columbia
are expected to support the housing market. The favourable domestic factors in the region will be positive for the sales and demand for our development projects in Vancouver and Richmond, Canada.
Over the last year, hotel occupancy rates have been close to the strongest on record in Australia's four largest cities, remaining at or above 80% in Perth, Sydney, Melbourne and Brisbane. These major capitals are projected to see continued growth in occupancy rates. Demand remains forecast to outstrip supply in these major capital city markets, reflecting the sustained growth in business travel, improved conditions for domestic leisure and strong expected growth in international arrivals from the emerging Asian economies.
Our hospitality business spanning across Singapore, Australia, China, Canada and Thailand will continue to generate a stable recurrent income stream for the Group. We will continue to explore and evaluate opportunities for expansion of our hotel operations to further enhance the revenue contribution from the hospitality division.
We will remain proactive in seeking opportunities to expand our property development internationally. Operation wise, the Group will continue to strengthen our product quality and competencies with emphasis on systems, execution and process flow as well as training and human capital investment to achieve higher efficiency, productivity and margin for all our projects. Looking ahead, we are committed to maximizing returns to our shareholders via continuous cost improvement initiatives, human capital development, innovative product offerings and strategic investment decisions. Barring any unforeseen circumstances, our Group will continue to be profitable in the financial year ending 31 January 2014.
On behalf of the Board, I would like to thank all our valued shareholders, business partners, clients, financiers and all government authorities for the support and trust in our Group. I also wish to thank our remisiers, agents, management team and staff of TA Group for their commitment, relentless efforts and invaluable contribution that made 2012/2013 another successful year for the Group, despite the challenging business environment. Last but not least, I would like to record my appreciation to every board member of TAE and its subsidiaries for the continued advice, guidance, support and cooperation throughout the year.
In essence, I look forward to all your continuing partnership to propel the Group forward in the future.
Datuk Tiah Thee Kian
Non-Independent Non-Executive Chairman