Hotel Shilla - Higher DFS licence fee?

5% DFS licence fee less 6.6% sales commission to the travel agencies—no new news and unrealistic Several local media including the Korea Economic Daily reported Monday that an assembly member in the opposition party has proposed a bill to ban the DFS’ sales commission paid to the travel agencies (6.6% of 2014 DFS total revenue) and instead to impose the DFS operators 5% of revenue as a licence fee.

Follow-up news on the licence fee hike
There may be some changes ahead:
(1) The assembly member’s (Mr. Hong, Jonghak) secretary commented that the licence commission increase and the sales commission cut are appropriate, but that they are aware of the pushbacks from the respective industries.
(2) The MoSF sounded more reserved, and that they will consider the industry experts’ and several experts’ opinions, including the public hearing that will take place this Thursday.
(3) According to the Maeil Business Daily, there are likely ongoing debates among the related parties. The Customs Office prefers to have large and competitive DFS players given (1) strong demand by the Chinese travellers and (2) the Korean government's will to grow the DFS industry amid intensifying competition within the region.



Regulatory risk may be a concern until details are known
Despite the suggested bill being a very unrealistic scenario, any kind of regulatory risks could weigh on the stock until further details are known, as we had seen in the previous cases. Believe that 1-2% is a more realistic scenario, which may have limited impact on the DFS’ earnings. Assuming this extreme scenario (5% fee and banning the sales commission to the travel agencies), Shilla’s OP could decline by more than 20% from current estimates.

(Source: Media reports, web articles)

Construction Sectors

Construction Overweight We expect urban public transport to be prominently featured in Budget 2016. Already, the 11MP sets a 40% public transport modal share in the Klang Valley by 2020 from 17.1% in 2014. Rail-based mass transit networks will eventually take over the existing land-based road networks as the backbone of the public transportation system in densely populated areas particularly in the Klang Valley. We expect the Government to reaffirm its commitment towards the implementation of MRT2, LRT3, and more bus rapid transit (BRT) projects (MRT2 <MYR28bn>, LRT3 <MYR9bn>, BRT) in Budget 2016.

(Source: Media reports)

Emerging Markets Economics Week Ahead

Next Week’s Market Drivers:

 China — M2 growth could moderate to 12.8%YoY in September due to falling money multiplier and weak credit demand. CPI and PPI gap may have widened a bit more on elevated pork prices and commodity price decline (Citi: Sep CPI 2.1%YoY; PPI -6.0%YoY).

 India — We expect industrial production to improve to 4.9%YoY in Aug vs 4.2% last month with a pick up seen in electricity output. We expect CPI inflation to rise to 4.5%YoY in Sep from 3.7% last month as base effect began to reverse and food prices rose on monsoon concerns. We expect WPI inflation to remain in negative territory for the 11th straight month at -4.2%YoY in Sep vs -4.9% last month even as the base effect turns slightly unfavorable.

 Indonesia — We expect the trade surplus to have improved in Sept (US$ 784mn) amid an uptick in the prices of commodities such as palm oil and shrinkage in machinery imports amid high exchange rate volatility. Meanwhile BI will likely continue to hold its benchmark policy rates at current levels (Citi: Oct BI rate 7.50%; FasBI rate 5.50%)

 Korea — We expect jobless rate in Sep to decline by 0.2%p to 3.4%SA from a month ago as service and construction sectors continued to accrue jobs. We now change our call for a rate cut in Oct to later this year, in Dec at the earliest.

 Malaysia — Aug industrial production likely increased 4.2% YoY (Jul: 6.1%) Sep CPI likely slowed to 2.8%YoY.

 Singapore — Advance estimates for 3Q GDP should come in at 1.7%YoY, +2.0%QoQ SAAR despite weaknesses in manufacturing and construction. Barring surprises from lumpy ships and pharma, we expect NODX to fall 2.5% YoY in Sep. Our base case anticipates no change in MAS policy, but this is a close call.

(Source: Citi research)

CLIQ Energy

CLIQ Energy Bhd plans to raise at least RM210mn (USD50.0mn) through a rights issue, to address the potential shortfall between its trust account cash and payment of the initial USD90mn for its qualifying acquisition (QA) of a 51% stake in Phystech II Joint Stock Company. The proposed rights issue will also enable the group to finance its capital commitment of up to USD17.5mn (RM73.2mn) for development of the Karazhanbas Northern Oilfield (The Edge).

YTL Power

YTL Power International Bhd has won the bid to supply power from its existing 808- megawatt (MW) power plant in Paka, Terengganu, to the main grid for two years and 10 months commencing March 1, 2016. YTL Power Generation had won the short-term capacity bid called by the Energy Commission (EC) (The Edge).

Berjaya

Berjaya Corp Bhd’s (BCorp) 60%-owned indirect subsidiary KUB-Berjaya Energy Sdn Bhd (KBESB) has entered into a 60:40 joint venture (JV) agreement with Amita Environmental Strategic Support (Malaysia) Sdn Bhd to undertake an industrial waste recycling project for RM900K cash. The proposed JV is subject to approvals from the Ministry of Urban Wellbeing, Housing and Local Government and an environmental impact assessment study by the Department of Environment (The Edge).