Thursday, 21 November 2024

Rich Malaysians Want RM3.6Mil For Retirement?

While many Malaysians earn barely enough to make ends meet, their more affluent countrymen are putting aside millions to ensure they enjoy their golden years. A recently concluded survey by global financial institution HSBC shows that at least half of wealthy Malaysians already have a plan in place to meet their financial needs post-retirement.

HSBC refers to them as “power planners”. This was reported in the second edition of its Global Quality of Life Report. For each of these wealthy individuals, nothing less than US$830,000 (RM3.61 million) is adequate. About 73% of them say they are already on track to meet their retirement goals.

 


Source: https://en.wikipedia.org

On average, wealthy Malaysians are also more committed to ensuring the success of their retirement plan than their peers elsewhere. The survey shows that 84% of Malaysians already have a comprehensive financial plan for retirement, compared with the global survey average of 72%.

The HSBC survey covered 11,230 affluent individuals across 11 markets, out of whom 499 are Malaysians. Only those who have assets of US$100,000 to US$2 million (RM434,000 to RM8.68 million) were covered in the survey.

The survey was conducted to explore what quality of life means for affluent individuals across different generations and investigated the relationship between physical and mental wellness and financial fitness. Affluent Malaysians also worry a lot about physical health, the cost of healthcare and inflation. A total of 44% rank having adequate insurance coverage as a top financial goal. On average, affluent Malaysians put aside at least 24% of their monthly income towards investment. A survey early this year by another financial institution, Hong Leong Bank, showed that only 12% of Malaysians considered themselves well-off.

It all depends on lifestyle. Retirement lifestyle and legacy funds for the next generation are the key concerns. In essence, if you have RM10k per month as “passive” income you could be fine. That assumes you are debt-free and have a dwelling place. But not many are in this situation because of Covid. And so may depend on the next generation for some form of financial support. As you grow older, health issues and costs become central. So, if you have adequate insurance you may have mitigated the risk. No matter what, do try to enjoy life and make every moment count.


Reference:

Rich Malaysians want at least RM3.6mil in the nest egg, FMT Reporters, FMT, 

4 November 2024


Wednesday, 20 November 2024

How Inflation Impacts Life in Malaysia

 Inflation affects everyone, but not equally. Most people feel that the cost of living is getting more expensive every year. That is true, but some items are more affected than others.

 


The general definition of inflation: The decline of purchasing power of your money over time. In other words, what can you buy with RM10 today will be less than what it could buy you 10 years ago? Look even further back and the difference can be surprising.

The inflation figures are calculated using a weighted average price level of a basket of selected goods and services over a set period: this is the Consumer Price Index or CPI. It is a national average — therefore, the prices in an urban area are likely to be higher than in rural areas. Also, this ‘basket of goods’ only contains primary consumer goods, not luxury or premium goods.

Top 3 contributors to Malaysian CPI weightage:

 


According to the Department of Statistics Malaysia, prices were taken from 17,000 retail outlets in states of Peninsular Malaysia, 2,500 outlets in Sabah and 2,300 outlets in Sarawak. This may not reflect where you live, your consumption habits, and what you choose to spend your money on. The important thing to remember here is the CPI is used to paint a picture of the current trends and at least give you an idea of what you need to prepare for in the future or to adjust your spending habits.


There are several factors that drive inflation — some are easy to manage, while others are ingrained in our society’s structure and will likely be around for a while. 


1. Demand-Pull Inflation

The ‘good times’ indicator: Usually seen in times of strong economic growth, when demand surpasses supply, forcing an increase in the cost of living. It may be a sign of rising salaries, lower unemployment and a growing desire for better standards of living.

Real-life example: It’s like what happens to hotel room rates (and even certain food types for festive occasions) during peak and off-peak seasons. 


2. Cost-Push Inflation

Higher costs of goods sold: Increased production cost due to rising raw material costs driven by global shocks, geopolitical unrest and trade wars. A blockage of shipping routes (like 2021’s Suez canal obstruction) can do the same. Real-life example: Due to global geopolitical issues, climate change and other factors, the prices of fertiliser, flour and grain have risen due to supply shortages.


3. Built-In Inflation

It keeps spiralling, and is hard to reverse: Even expectations that inflation will persist into the future can drive prices; workers will demand higher wages to maintain their standard of living, leading to even higher production costs, driving an upward wage-price spiral. Real-life example: While property prices rise due to construction costs (raw materials and labour), it still remains an attractive investment vehicle for many who accept higher prices as a reality that they have to live with.

Malaysia’s Food Inflation; a breakdown

Which food items are actually driving inflation in Malaysia?

 


Heavy rains throughout December 2021 directly impacted the supply of vegetables, fish and other seafood – the most common foods for Malaysians. External factors such as global prices of animal feed and other grains ended up driving chicken prices, while the ongoing Ukraine war is driving oil, gas, grains and fertilisers – bad news for agriculture. 

So, what is the cost of living? This is when wages or income have not kept pace with inflation. Your purchasing power has declined, and you have to do two jobs just to meet the bills. This is what happened in the U.S.

Many were unhappy with the current U.S. Administration even though the inflation rate was brought down to 2%. Why? Because many face stagnant wages to costs driven up by supply chain issues after Covid. They wanted wages to go up or prices deflated so that they could enjoy a standard of living they were used to. Trump seems to have addressed their concerns.

It is good for the Madani Government to learn from the Biden Administration’s failure to address this issue (of cost of living). How? Higher cash transfers for the B40, more subsidies for essential goods, productivity improvements, strengthening the Ringgit, wage improvements and better communication on steps being taken. These are important if you want to remain in power. Not some other wasted effort like medical treatment for people from Gaza or monetary contribution to Lebanon!


Reference:

Fresh Take - How inflation impacts life in Malaysia, Hong Leong Bank


Tuesday, 19 November 2024

Reforms for the Healthcare Sector?

Major transactions have taken shape in the hospital sector by large market players. Acquisitions made were clearly either expanding network or getting ready for an initial public offering (IPO).

Two key assets changed hands in the past year, and they include the acquisition of Island Hospital, which was completed recently, by IHH Healthcare (IHH) for RM3.92bil. The Penang-based hospital was valued at RM3.92mil per bed based on its planned expansion to a 1,000-bed hospital. Measured by enterprise value to earnings before interest, tax, depreciation and amortisation (EV/Ebitda), the deal was done at a staggering 24.6 times multiple.

Then in 2023, Sime Darby and AH Holdings Health Care Pty Ltd sold Ramsay Sime Darby Hospital (RSDH) to Columbia Asia for RM5.68bil, valuing the Subang Jaya-based hospital at 20.1 times EV/Ebitda and at RM3.71mil per bed based on RSDH’s 1,530 total beds capacity across seven hospitals in Malaysia and Indonesia.

Private hospitals trade at a premium valuation to other industries due to the cash-generating ability of the business model as well as the strong growth of the industry itself due to multiple factors such as higher life expectancy, rise in non-communal diseases (NCD) as well as demand for personalised and timely care for those who can afford them.

 


Source: https://en.wikipedia.org


According to the Health Ministry, as disclosed in the Health White Paper (HWP), Malaysia has a hybrid healthcare system, comprising a public and a private healthcare system. The public sector seeks to provide widespread coverage of universal healthcare for the population, delivering virtually near-free primary healthcare services and heavily subsidised secondary and tertiary care services which are largely funded by federal government revenues. The private sector seeks to provide healthcare services to the public on a fee-for-service basis which is predominantly funded by individual out-of-pocket payments and private health insurance products.

In terms of numbers, based on the ministry’s 2023 Health Facts report, Malaysia had some 148 government hospitals, inclusive of 11 special medical institutions, with some 45,167 beds at the end of 2022. Over at the private sector, the number of private hospitals stood at 207 with some 17,781 beds. Hence, while the public sector has a 41.7% share in terms of the number of hospitals, they represent 71.8% of the total number of beds.

The Health Ministry has one of the highest allocations of RM45.3bil in Budget 2025. The amount comprises RM38.5bil for operating expenses and RM6.7bil development expenditure. Emoluments supply and services are the bulk of the government’s expenditure for the ministry, accounting for 53.3% and 37.3% of total expenditure next year respectively.

According to the Global Medical Trend Rates Reports by Aon, medical costs in Malaysia rose by 10% in 2022 and 12.6% in 2023, which is higher than the global average of 5% in 2022, and 5.6% in 2023.

Among the key factors contributing to the rise in medical cost inflation is the increase in costs of hospital supplies and services, including drug prices, advancements in medical technologies, and the increase in the utilisation of health services following the resumption of elective medical procedures following the Covid-19 pandemic.

One of the most important questions patients get at a hospital is whether they are insured or not. An insured patient will be covered by his/her insurance company but with the co-payment in place, the insurance company’s outlay is reduced by the agreed co-payment amount, either in percentage or the absolute amount. Still, the medical bill can be rather substantial, and this drives insurance costs higher over time.

Medical inflation via insurance coverage is also rather obvious as there are cases where a treatment done and paid out of one’s pocket is lower by 15% to 20% than if covered under insurance. Why is this so? It is widely believed that the pure reason for this is that since it is covered by insurance, it is a blank cheque for the hospitals to charge what they can.

The recent comment by the Health Minister on the proposal to set up a National Health Fund (NHF) is positive for the healthcare industry to ensure we have adequate cover for all Malaysians. The NHF should be funded not only via contributions from the government but also perhaps via a defined contribution mechanism from both employers and employees that could mitigate some of the rising healthcare costs. This can be like the Employees Provident Fund but obviously with a lower contribution ratio. Even a 2% contribution each by both parties can easily add more than RM20bil into the NHF, which can then be used to subsidise healthcare costs for all Malaysians.

The Malaysian healthcare sector is at a crucial point whereby intervention by the government is necessary to reduce medical inflation in the private sector for the benefit of all.

Reference:

Healthcare sector needs a dose of reforms, Pankaj C. Kumar, The Star, 9 November 2024


Monday, 18 November 2024

5G: Spectrum Value and U Mobile!

Appointing U Mobile as the second operator of the 5G network in Malaysia has raised several issues. The “one service provider” model was agreed upon, signed, and sealed in March 2021. And abandoned in May 2023. U Mobile’s award was announced 17 months later Nov 1, 2024.

U Mobile was launched in 2007 as Malaysia’s fourth-largest telco (before CelcomDigi merger). At the moment, its 4G network has over 9,000 sites nationwide and is said to have over 9 million subscribers in 2023.

As a comparison, Malaysia’s largest mobile telco, CelcomDigi, currently has nearly 25,000 sites post-merger. The telco is currently undergoing an integration and modernisation exercise aimed at providing a combined 18,000 5G-ready sites by the end of 2025. CelcomDigi currently has 20.2 million subscribers based on its Q2 2024 report.

Meanwhile, Maxis recently revealed it has over 11,000 sites as mentioned in its response to the second 5G network bid. The green telco currently has the second most mobile users in Malaysia with over 12.7 million subscribers according to their Q2 2024 report.

According to a recent report by Macquarie Research, CelcomDigi and Maxis dominate when it comes to revenue share for the Malaysian mobile market. Among the trio, CelcomDigi holds an estimated 50%, followed by Maxis at 37% and U Mobile at 13%.

Shareholders and shareholding as reported by SSM is shown in the Table below:

 


CelcomDigi and Maxis were forerunners in the second 5G network race as both telcos have invested heavily to modernise their existing 4G network to be 5G-ready in the past few years. All they needed was the 700MHz and 3500MHz spectrum to provide 5G coverage using its existing infrastructure.

Ever wondered why telecommunication companies fought tooth and nail against establishing a single network provider for 5G services and lobbied strongly against DNB as the sole provider of such services?

The magic word is spectrum, the frequency band for transmission which in Malaysia is given totally free of charge to the telcos. These are worth billions and because they are given free, telcos can make quite a bundle from them.

In the US, telcos paid US$81 billion for 5G spectrum in 2021, yes, a whopping RM356 billion, but here in Malaysia, we are giving it away for free- for free! In Malaysia, a former minister estimated it could be worth between RM6 billion and RM15 billion!

That’s why a single wholesale network was proposed as the model for Malaysia so that 5G costs to the consumer were the lowest possible. DNB got the contract and was to roll out the services for all. And yes, it got the spectrum for free. 

There are three options the government has in terms of this 5G contract:

1. Retract the award

2. Revise the new award of 5G to a consortium

3. Keep the status quo

Option 3 has no logic, no rhyme or reason! But remember this is Malaysia!


References:

Comment I 5G: Spectrum value, the Singapore link and other issues, P. Gunasegaram, Malaysiakini, 12 November 2024

Who owns U Mobile and how did it beat CelcomDigi and Maxis for second 5G network? Alexander Wong, https://soyacincau.com, 4 November 2024


Friday, 15 November 2024

More Highway Projects?

 

Of the highway projects mentioned in Budget 2025, the West Ipoh Span Expressway (WISE) and the extension of the West Coast Expressway (WCE) have raised some questions. In the case of WISE, concerns revolve around its viability, both financially and operationally. This is partly due to the fact a little-known company called East Coast Road Sdn Bhd (ECR) will be undertaking the RM6.2bil project.

The cost of WISE has increased by almost half-a-billion ringgit from RM5.75bil estimated before. At RM6.2bil for a stretch of 60.88km, this translates to roughly RM101.8mil per kilometre. Expressways typically cost RM30mil to RM40mil per kilometre, although this may vary according to project specifications, the type of terrain as well as land acquisitions. For elevated expressways, the cost will be higher at RM50mil to RM60mil per kilometre.

 

Source: https://en.wikipedia.org

 WISE starts from the North-South Expressway (NSE) in Gopeng, bypasses the accident prone-Menora Tunnel section and then re-joins the NSE in Kuala Kangsar. The traffic projections for WISE are questionable after Works Minister recently said it would reduce congestion along the NSE by up to 40%. The average daily traffic (ADT) economics for WISE does not seem to work out. This is considering WISE’s relatively short distance where traffic volume may not be significant. 

The CA stipulates a fixed toll rate of 23 sen per kilometre throughout the concession period. This is more than double the NSE’s rate of 11 sen per kilometre, set to remain until the end of its concession. 

It was recently reported the government, represented by Works Ministry secretary-general, signed a 55-year CA for WISE with ECR on Sept 5. Interestingly, the secretary general was transferred from the Prime Minister’s Department to the Works Ministry on the same date. ECR will surely rely on external funding in the absence of equity injection by its owners to undertake the project. 

The toll rate for the WCE, on the other hand, is 16 sen per kilometre, which will be revised every three years based on a step-up formula. 

By the time of completion in 2026, the cost of the WCE is expected to exceed RM8bil, according to an earlier report by RAM Ratings. The WCE, which is 94% completed, connects Banting in Selangor to Taiping, Perak. 

The WCE, which is set to be completed in 2026, is also an alternative route to the NSE, connecting Taiping, Perak, to Banting, Selangor. In his Budget 2025 speech, Prime Minister announced the expressway will be extended from Banting to Gelang Patah, Johor. While the extension was briefly mentioned in the Public-Private Partnership Master Plan 2030 released in September, it hardly garnered media attention then. 

With WCE yet to turn profitable, the company may not have the financial muscle to undertake the project without additional equity injection from its shareholders. Shareholders originally injected RM1.2bil into WCE Holdings, including the single-largest shareholder IJM Corp Bhd, which controls a 26.7% stake. 

However, due to project delays, the equity injection has ballooned to RM1.9bil so far.

WCE Holdings also had to sell its 40% stake in the Bandar Rimbayu development to raise cash to meet the funding needs of the coastal expressway. 

The project extension, assuming it is undertaken by WCE Holdings, may extend the break-even period for the expressway. Previously, WCE Holdings chief executive officer said WCE may take five to seven years to break even. This is not inclusive of the proposed extension. WCE Holdings has begun a restructuring exercise with the government and the company’s existing lenders to raise the capital required to complete the project by 2026. 

We need connectivity but do we need more toll highways? The PH or Madani Government was against tolled highways. At one time they wanted the total removal of all tolls. Now the tune is different! What about trains? Malaysia is fixated with cars, like the United States. It’s time for trains whether high-speed or otherwise! 

Reference:

Highway projects at a crossroads? Ganeshwaran Kana, The Star, 4 November 2024

Thursday, 14 November 2024

Primary School Dropout Rate Rising in Malaysia?

A growing number of children from marginalised and vulnerable communities are dropping out of primary school in Malaysia, according to United Nations (UN) data. The UN’s Educational, Scientific and Cultural Organisation (Unesco) show a 20% increase in the number of out-of-school primary school students in the country for 2022, at 145,204 persons, compared with 121,231 in 2021. Experts say the rise in the dropout rate was due to the impact of the Covid-19 pandemic. 

Poverty and financial instability had been exacerbated by the pandemic, leading families to prioritise work over education,” said Universiti Sains Malaysia (USM) School of Educational Studies Professor in Curriculum Studies and Education Policy, Prof Dr Hazri Jamil (and as reported in the Star (28 October 2024).

 



The pandemic led to a shift to learning online, which highlighted the digital divide and inequities where students without reliable Internet access or devices struggled to participate in schooling, leading to disengagement. 

Some parents are also not enrolling their children in school due to a lack of awareness about the importance of education or cultural practices that prioritise other activities over schooling.

According to the Khazanah Research Institute, Malaysia saw a total of 41.5 weeks of full school closures between mid-February 2020 to July 1, 2022, which led to several types of losses, including psychological, academic, skill development, and equal education access. “Countries that had longer school closures also saw a greater decrease in their Pisa 2022 score outcomes,” its Households and the Pandemic 2019-2022: The State of Households 2024 (SoH 2024) report.

Malaysia had also seen its Pisa scores drop more intensely compared with other countries in the region, with our students faring the worst in reading in 2022.

 



Malaysia’s rapid population ageing is another factor that affects school enrolment. According to the Statistics Department, primary school enrolment shrunk to 3.02 million in 2022, a drop of 63,420 persons from the previous year. The moderating rate of school enrolment can be attributed to shrinking birth rates. 

The growth in school enrolment in the country started to slow down in 2014 as shown below:




What does it mean? The future is bleak for some kids, social discontent will rise, criminal activities could increase, and the nation’s future is impacted. But we have a woeful MoE that cannot see, hear or speak! 

Reference:

Interactive: Primary school dropout rate rising in Malaysia, Diyana Pfordten and Rebecca Rajaendram, The Star, 28 October 2024

Wednesday, 13 November 2024

Inflation to Return?

It wasn’t too long ago that Malaysia was moderating high inflation like many other countries. Inflation has cooled and is expected to be stable till year-end. (Although cost of living may not be addressed). In 2022, the pace of consumer price increases was at about 4.2% but latest data puts it at 1.8%. 

Easing global supply chain disruptions, for one, has been responsible for this ease in price spikes. However, for 2025, the risk of inflationary pressure will be back, due largely to the implementation of key economic reforms or removal of subsidies and increase in public/private sector wages. 

Socio-Economic Research Centre (SERC) reckons there are upside risks to headline inflation next year given the anticipated fuel subsidy rationalisation as well as higher private and public sector wages. Inflation will increase by 2.5% to 3% in 2025 compared with the estimated 1.9% for 2024 according to SERC.

 



Malaysia’s current inflation rate of below 2%, reflects the easing of price pressures. The current low and stable inflation is also supported by the ringgit’s strength. 

Since March 2020, prices have collectively risen by 10.17%. Food and beverage prices rose by 15.73%, transport prices by 17.21% and restaurant and accommodation services by 15.32%. That’s cost of living!

Bank Negara is expected to keep the benchmark overnight policy rate at 3% for the rest of 2024 and into the new year, to curb the anticipated inflationary pressure and to continue to support the ringgit. But more needs to be done if the Feds fail to cut the Fed Fund rate in the U.S. And with Trump’s victory, tariffs will now be in place and inflation will spike in the U.S. and other parts of the world. So, brace for a crash! 

Reference:

Inflation woes to return, Yvonne Tan, The Star, 4 November 2024