Latest news with #Reits
New Straits Times
11 hours ago
- Business
- New Straits Times
SST expansion sends ripple effects across key sectors
KUALA LUMPUR: The expanded Sales and Service Tax (SST), projected to generate RM10 billion in annual government revenue, is set to create ripple effects across industries, according to RHB Investment Bank Bhd. The firm said while essential goods and services remain exempt, the broader tax net is likely to create both opportunities and challenges for key sectors such as plantations, consumer goods, property and real estate investment trusts (Reits). "On balance, the SST expansion appears to be a carefully calibrated move. It shores up public finances with limited impact on the average consumer, but the sectoral implications could be material in certain pockets of the economy," it said in a note. Among the sectors expected to face headwinds is the glove manufacturing industry, which continues to grapple with tight margins amid an oversupplied post-pandemic market. "The expanded SST will increase glove production costs by approximately 25–30 US cents per 1,000 pieces. This puts further strain on producers at a time when competition remains intense, and cost pass-through remains challenging," it said. A temporary relief has been introduced via a grace period until Dec 31, during which the Customs Department will withhold enforcement of the new tax on latex imports. The plantation sector also faces pressure, particularly among downstream players, as palm kernel oil (PKO), a key processed output, will be subject to a five per cent SST. While crude palm oil and fresh fruit bunches (FFB) are exempt as agricultural produce, PKO is categorised as a manufactured product and thus taxable. RHB Investment said this could affect companies such as Sime Darby Plantation Bhd, IOI Corp Bhd and Kuala Lumpur Kepong Bhd, although the precise earnings impact remains unclear due to limited disclosure on internal versus external sourcing of PKO. Meanwhile, Reits are expected to absorb the new eight per cent SST on leasing and rental income with manageable short-term impact, as landlords are likely to pass on the tax to tenants. "However, upon the next lease renewals, upside to rental reversions may be limited, as landlords may prioritise tenant retention and maintain positive business relationships," the firm said. In view of this, the research house said it prefers industrial Reits, which are typically backed by long-term master leases with multinational corporations. In the consumer sector, the impact is projected to be manageable given that exemptions cover daily essentials. Retailers with strong bargaining power may be able to offset the effects through rental negotiations. The expanded SST will also apply to inter-company leases, previously tax-exempt, potentially affecting conglomerates with extensive asset portfolios. "This change could impact how groups allocate resources across subsidiaries, especially those with large asset portfolios under lease-based structures," it said. Despite uneven impacts across sectors, the firm remains optimistic about the broader economic outlook. It noted that the additional RM10 billion in expected revenue can serve as an effective pump-primer to stabilise and drive the domestic economy. It said the SST expansion also signals the government's ongoing commitment to steady public finance reform, amid global trade frictions and geopolitical volatility. "It's a good time to gradually accumulate quality names, particularly those with pricing power and minimal tax exposure," it added, recommending a cautious but selective investment stance focused on domestic-centric stocks.
Business Times
3 days ago
- Business
- Business Times
Bursa Malaysia's REITs shine amid macro headwinds although risks loom
[KUALA LUMPUR] Malaysian real estate investment trusts (Reits) appear to be making a comeback, beating the broader market as investors chase defensive and yield-generating assets amid expectations of rate cuts. But the momentum faces a near-term test, with the expanded Sales and Services Tax (SST) kicking in on Jul 1. As the upcoming tax compels landlords to levy an 8 per cent service tax on commercial leases, analysts expect it to drive costs up for tenants and dent Reits' earnings. RHB Research analyst Wan Muhammad Ammar Affan observed that the Bursa Malaysia Reit index has modestly outperformed both the FBM KLCI and FBM100 indices since 2022. 'M-Reits have demonstrated greater stability than the broader equity market, particularly during recent periods of global market volatility,' he told The Business Times. The Bursa Malaysia Reit Index has risen 2.5 per cent in the year to Jun 13, even as the benchmark FBM KLCI slipped nearly 0.6 per cent. Twenty Reits with a collective market capitalisation of nearly RM54 billion (S$16.3 billion), are listed on Bursa Malaysia. These Reits offer dividend yields of between 5.6 per cent and 6.1 per cent – a spread of up to 258 basis points over 10-year Malaysian Government Securities. A NEWSLETTER FOR YOU Friday, 8.30 am Asean Business Business insights centering on South-east Asia's fast-growing economies. Sign Up Sign Up The sector's momentum, particularly in the retail and industrial segments, was underpinned by Bursa Malaysia's largest Reit listing in 13 years – that of the RM1.6 billion debut of Paradigm Reit last week. The trust, backed by one of the country's long-time construction stalwarts WCT Holdings, owns and manages malls in the urban catchments of Johor and Selangor, all boasting strong occupancy. Wan Muhammad noted that while easing US-China tensions may redirect some capital flows toward riskier assets or cyclical sectors, Reits should continue to benefit from declining bond yields amid expectations of global interest-rate cuts. 'As bond yields fall, the yield spread between Reits and government bonds widens, making Reits more attractive to income-seeking investors,' he added. Looming risks But challenges are afoot for the sector. While trusts with prime assets and strong tenants should remain resilient, the broader SST expansion could hurt weaker-performing properties at risk of higher vacancy, said CGS International Research. 'Reits with lower-quality portfolios may need to offer rental support, which could weigh on earnings and distributions,' it noted. There are other risks as well. Maybank Investment Bank Research analyst Nur Farah Syifaa noted that while Reit managers remain cautiously optimistic, they face risks such as rising power tariffs, subsidy rationalisation, and limited ability to raise rents in a weak consumer environment. MIDF Research analyst Jessica Low has downgraded the sector to 'neutral', noting that earnings for many retail Reits have already normalised to pre-pandemic levels. She expects a more moderate pace of growth going forward. Bursa Malaysia's latest debutant, Paradigm Reit finished flat on its maiden day of trading on Jun 10; as at Jun 17, it was 3 per cent up at RM1.03. The Reit owns Paradigm Mall Johor Bahru, Paradigm Mall Petaling Jaya and Bukit Tinggi Shopping Centre in Selangor; the manager is looking to add four more assets – Hyatt Place Johor Bahru Paradigm Mall, Le Meridien Petaling Jaya, Premier Hotel Klang and Gateway@Kuala Lumpur International Airport Terminal 2 – into the portfolio by 2026. Retail and industrial reits shine Retail and industrial Reits remain top picks among analysts. Sunway Reit and Pavilion Reit lead in the retail space, backed by high footfall and tenant quality. Sunway Reit, with RM10.5 billion in assets, recently expanded its flagship Sunway Pyramid Mall and upgraded Sunway Carnival in Penang, positioning itself for rental upside. Pavilion Reit, anchored by Pavilion Kuala Lumpur Mall and Pavilion Bukit Jalil, continues to benefit from returning tourist traffic. 'Footfall in well-located malls has returned strongly, particularly those with strong exposure to tourism,' said RHB's Ammar. 'This supports healthy rent growth and stable occupancies.' Industrial Reits are favoured for their defensive characteristics and predictable income. Axis Reit, the first industrial-focused trust on Bursa Malaysia, owns 69 properties with 97 per cent occupancy, and posted 5.3 per cent rental reversion in 2024. AME Reit, based in Johor, recently acquired three new industrial assets, expanding its portfolio to 44 properties. RHB Research estimates AME's ongoing RM148 million acquisition pipeline could lift its total asset value by 31 per cent, boosting earnings over the next two years. 'Industrial Reits are seen as the most stable in terms of tenancy and occupancy risk, but typically see slower rental growth, with reversions generally in the low single-digit range due to the long-term nature of their leases,' said Ammar. Office segment under pressure Maybank's Nur Farah noted that although office Reits are largely supported by long leases and stable occupancy, the segment remains challenging amid an oversupply and changing tenant preferences. Ammar said the persistent supply-demand imbalance has reduced the attractiveness of office Reits, with investors remaining cautious about potential declines in occupancy – and this is despite the segment's usually higher dividend yield. 'The risk of declining occupancy lingers as corporations consolidate or shift to green-certified, hybrid-ready buildings,' he added. Portfolio diversification Yulia Nikulicheva, head of research and consultancy at JLL Malaysia, highlights that Malaysian Reits have undergone notable changes in their investment strategies over the past five years. 'Previously, Reits primarily concentrated on traditional assets such as offices, shopping centres, retail spaces and hotels. Today, however, they are increasingly diversifying into new sectors,' she told BT. Logistics and industrial properties are emerging as key growth areas, she said, noting also a growing trend among Reits to diversify further by incorporating educational and healthcare properties alongside logistics and industrial assets. For example, CapitaLand Malaysia Trust has expanded its portfolio by acquiring multiple industrial assets in recent years, boosting the proportion of these properties in its holdings. Sentral Reit, which focused on the office segment, has unveiled plans to diversify its asset base across the office, retail, industrial, education and healthcare segments to mitigate sector-specific risks and strengthen property income streams. Similarly, Singapore-based Mapletree Logistics Trust has been actively purchasing assets in Malaysia, further extending its presence in the country. 'Despite these shifts, Malaysia's Reit market remains relatively conservative, with most players making only modest changes to their portfolios over the past three years,' said Nikulicheva. Potential rate-cut boon Maybank's Nur Farah added that the anticipated rate cuts by Bank Negara Malaysia would be a boon for the sector in that it would lift asset valuations and ease financing costs. Falling bond yields widen the yield spread between Reits and sovereign debt, boosting the attractiveness of Reits for income-focused portfolios. A cut in the overnight policy rate (OPR) by Bank Negara in the second half of 2025, she said, would help those Reits which are carrying more floating-rate debt, by triggering spread compression. 'This move would enhance valuations and reduce borrowing costs for Reits pursuing growth. While most Reits are still guiding for stable dividends and boast comfortable gearing levels, there's still capacity for strategic, yield-enhancing acquisitions,' she added. Still, Nikulicheva cautioned that in an environment of heightened uncertainty, a 25-basis-point rate cut may not materially alter investors' yield expectations. 'In theory, lower rates should push yields down, but risk perception plays a bigger role in this cycle,' she said. In addition, the high occupancy rates enjoyed by large-cap M-Reits should continue to support healthy dividend growth. There is also potential earnings upside from acquisitions, further supported by lower borrowing costs, particularly for Reits with floating-rate debt as bond yields decline.
RTHK
4 days ago
- Business
- RTHK
'HK to diversify financial services to drive growth'
'HK to diversify financial services to drive growth' Christopher Hui says the government is looking to boost growth in the family office sector, digital assets and artificial intelligence. Photo: RTHK The Secretary for Financial Services and the Treasury, Christopher Hui, has highlighted government efforts to boost growth in three areas – family offices, digital assets, as well as the responsible use of artificial intelligence – as the SAR seeks to further diversify its financial services sector. Speaking in an interview with RTHK marking three years of Chief Executive John Lee's administration as well as the 28th anniversary of the SAR's establishment, Hui said his bureau has released three policy statements and passed 33 pieces of legislation since taking office to help the city emerge from the Covid outbreak. He noted that Hong Kong's financial markets have shown resilience over the past three years, attracting global funds and family offices to increase investment here to help fend off risks. Hui said while 150 family offices have already set up shop here, another 180 have said they are interested in following suit, which would far exceed his bureau's goal of attracting a total of 200 by the end of the year. 'Among them, nine are with Middle Eastern backgrounds. Of course, there are also others with traditional market backgrounds," Hui said. 'But you can see that the appeal of Hong Kong as a family office hub is global," he said, noting that there's still ample room for growth of these offices that manage the wealth of ultra-high-net-worth families. Hui also said other than incorporating greater financial technology into the city's financial services industry, another key focus of his bureau is to improve relevant settlement platforms to drive trading of commodities in the SAR, so as to further boost product diversity. This came after the government took the leap in transforming the city into a premier bullion trading hub, while ramping up collaboration with the London Metal Exchange (LME) to become a key global metals centre. Hui said seven local warehouse facilities have been approved by the LME so far to speed up such trades, which could in turn boost financial services growth in the future. "For warehousing, it's not just about keeping them [the commodities] here. Sometimes, after [the commodities] are stored, some of their warehouse receipts can be used as collaterals for financing, which can lead to some derivative financial services. 'And even if their goods are stored in the warehouse, there will also be urgent insurance demands and so on. So, in fact, I think if our policies are well implemented, some corresponding institutions will naturally take these opportunities to develop their businesses.' Hui also said the government will continue to improve the financial connectivity between the SAR and mainland markets. Efforts include launching the offshore Treasury bond futures as well as real estate investment trusts (Reits) under the Stock Connect programmes.
Business Times
5 days ago
- Business
- Business Times
Perennial explores Reit listings in China with ‘aggressive' expansion in medical, eldercare sectors
[SINGAPORE] Property player Perennial Holdings is exploring real estate investment trust (Reit) listings in China – one for commercial properties and another for healthcare assets, the company's chief executive, Pua Seck Guan, told The Business Times. The Reits, which could be listed in Shanghai or Shenzhen, would ride on booming demand from yield-hungry investors on the mainland. 'The Chinese love this class of assets. If you go and do a check today, the Chinese Reit yield is below 5 per cent; in Singapore, it's more than 7 per cent,' said Pua in an interview at the company's one-north office. With deposit rates under 1 per cent, Chinese investors are hunting for dividends. 'So if you give them 4 to 5 per cent (in yield), they will be very happy,' the CEO said, adding that there is demand from both retail and institutional investors. Founded in 2009, Perennial has five healthcare-centric mega developments in China – in Chengdu, Kunming, Xi'an, Chongqing and Tianjin – and a commercial-focused one in Hangzhou, among other assets. It also operates China's first fully foreign-owned hospital in Tianjin, has another coming up in Guangzhou, and is invested in major eldercare company Renshoutang. BT in your inbox Start and end each day with the latest news stories and analyses delivered straight to your inbox. Sign Up Sign Up Reits were introduced in China in 2021, and demand has been 'stratospheric', according to a Bloomberg report in February. There were 28 Reits listed in China last year – nearly trebling from the number in 2023 – which raised a record 64 billion yuan (S$11.4 billion). Perennial may also consider listing its healthcare business in Hong Kong or mainland China, said Pua. The company, which traded on the Singapore Exchange from 2014 to 2020, has no plans to pursue listings here. Pua cited liquidity and valuations as concerns, along with the fact that the majority of Perennial's business is now in China. The company began its foray into China healthcare a decade ago with the opening of a medical hub in Chengdu. It now owns and operates more than 25,000 beds in medical and eldercare facilities in Singapore and China. In Singapore, Perennial, together with Far East Organization, is redeveloping Golden Mile Complex. There will be medical suites, offices, retail spaces and a residential tower. The company is also heading a consortium that is redeveloping the former AXA Tower in Shenton Way. A patient at the Perennial Rehabilitation Hospital in Tianjin. PHOTO: ST First-mover advantage Perennial's listing plans come on the back of big ambitions to expand in China's medical and eldercare sectors. In late 2024, it announced the 500-bed Perennial General Hospital Tianjin, the first such facility to be fully foreign-owned in China, with a one billion yuan investment. Months later, it inked a deal to build a second fully foreign-owned hospital in Guangzhou, also with a one billion yuan investment. Perennial is now concluding talks to open another fully foreign-owned hospital in Shanghai, said Pua. Tianjin, Guangzhou and Shanghai are among the nine trial cities where China has allowed fully foreign-owned hospitals to operate, in a pilot announced in September 2024. The other trial cities are Beijing, Nanjing, Suzhou, Fuzhou, Shenzhen and Hainan. Pua hopes to do projects in more than half of these nine cities. 'We think the Chinese medical (sector) is just at a very nascent stage… The market is huge, so we want to seize this opportunity. I think we have a first-mover advantage.' He sees the Chinese authorities being supportive of private operators such as Perennial that can service the medical needs of the upper middle class segment. The company also wants to ride on China's emerging medical tourism industry. It hopes to attract patients from Russia, Central Asia and South-east Asia – including Vietnam, Laos and Cambodia, said Pua. He views Guangzhou as an ideal location for medical tourism, due to its good air connectivity, infrastructure and weather. Perennial's rehabilitation facilities could also be a pull factor, with their combination of Western and traditional Chinese medicine (TCM), he added. That said, he acknowledged that the more challenging part is attracting patients who are willing to undertake surgery, and emphasised the need to build trust and reputation. Dr Daniel Liu, president of Perennial's general hospital in Tianjin, says the company wants to grow medical tourism in China. PHOTO: ST Perennial's Tianjin general hospital aims to have 30 per cent of its revenue come from international patients within its first year, said its president, Dr Daniel Liu. 'Medical tourism can't yet be called an industry in China; there are some signs, but not yet. What we hope to do now is to make this cake bigger,' he said during a tour of the hospital. Dr Liu believes that the hospital could even attract patients from the UK, where waiting times for surgeries are long. Some of China's specialised medical services – such as cardiology, orthopaedics and urology – are competitive with international peers, he said. 'Very aggressive' Perennial is 'actually very aggressive' with its expansion plans, said Tan Bee Lan, the company's healthcare chief executive, on the sidelines of a visit to a Renshoutang facility in Shanghai. Asked about the timing of the moves – amid global uncertainty and weak consumer spending in China – Tan said that she does not see a 'material effect', given the counter-cyclical nature of healthcare. There is also an opportunity to secure assets at attractive valuations. 'You should take projects when no one wants to do them – that is when you get the land, the property, at a very reasonable price… This is what Perennial is doing. We're going around very aggressively, looking at suitable properties to take over,' she said. Tan Bee Lan, Perennial's healthcare chief executive, is sanguine about macroeconomic headwinds. PHOTO: ST Perennial also plans to apply what it has learnt in Tianjin to an upcoming Singapore project: the city-state's first private assisted-living development, for which the company won a tender in June 2023. Said Pua: 'To be honest, it's very, very difficult to make money in Singapore because of the high real estate costs, the high labour costs… But I think being headquartered in Singapore, we thought (it would be) good to do something and (showcase) a model.' 'So this project will contain the ingredients that we have in Tianjin,' he added, citing how the development in Parry Avenue will also integrate eldercare with TCM rehabilitation and a geriatric care centre. With the Tianjin hospital opening more doors, Pua believes that the company is two to three years 'ahead of anybody' in its expansion plans. 'I'm excited,' he said. Perennial's key shareholders include agribusiness Wilmar International – where Pua is also chief operating officer – and Wilmar co-founder Kuok Khoon Hong.
New Straits Times
10-06-2025
- Business
- New Straits Times
Expanded SST to raise RM10bil annually, but may weigh on demand — Analyst
KUALA LUMPUR: The expanded Sales and Service Tax (SST) is expected to boost government revenue by RM10 billion annually but may dampen consumer demand and trigger modest earnings downgrades, CIMB Securities said. The research house said that while broadening the tax base is a fiscally prudent move, higher operating and input costs are likely to be passed on to consumers, potentially softening consumption in the second half of the year. "The revised tax structure will raise operating and input costs, which are likely to be passed on to consumers. This may result in higher prices for goods and services, potentially weakening demand and consumer purchasing power," it said in a note. Under the revised framework, discretionary and non-essential goods will be taxed at between five and 10 per cent, while the scope of the service tax will be expanded to cover six new segments. These include leasing and rental, construction, financial services, private healthcare, education and beauty. CIMB said the impact will likely become more visible in the third quarter of 2025, when businesses begin to reflect slower sales volumes and margin pressure in their earnings. It maintained its year-end FTSE Bursa Malaysia KLCI target at 1,560 points and said the broader economic impact of the tax reform is expected to be modest, although some sectors may see minor earnings downgrades. Mixed sectoral impact The SST expansion will affect sectors differently. For banks, the eight per cent service tax on fee-based income will hit a segment that, in some cases, makes up to 70 per cent of non-interest income. Still, CIMB Securities said the overall effect is expected to be marginal, as banks are likely to pass on the tax to clients. "We expect banks to pass on the tax to clients, which may dampen transaction volumes," it said, noting that the net impact is likely to be neutral to slightly negative. The outlook for consumer-facing companies is less upbeat, with retailers of non-essential goods likely to see weaker demand and slimmer margins as some absorb the tax to stay competitive. In the property sector, real estate investment trusts (Reits) may face limited rental reversion as the eight per cent SST on rental income takes effect, along with a six per cent tax on maintenance services. Reits with weaker occupancy and pricing power are expected to be more affected. Construction firms will face a six per cent service tax unless their projects involve residential buildings or public amenities. "To preserve margins, contractors are likely to pass on the higher SST through contract repricing," the firm said. CIMB Securities' top stock picks in light of the SST changes include CelcomDigi Bhd, Gamuda Bhd, Public Bank Bhd, RHB Bank Bhd, Tenaga Nasional Bhd, Maxis Bhd, IOI Corp Bhd, IJM Corp Bhd and 99 Speed Mart Retail Holdings Bhd. "We expect the revisions to earnings forecasts to be relatively modest, but sectors directly impacted by the tax expansion will require closer monitoring," the research house added.
