☕️ The unseen financial impact of KFC on Malaysians

1. MARKET SUMMARY 📈

2. NUMBERS AT A GLANCE 🔢

AKPK (National Credit Counseling and Management Agency) reported that it found 53,000 youths aged 30 and below are in debt, worth nearly RM1.9 bil in total (RM35.8k on average per person). AKPK provides debt restructuring services to those with loan issues to help restore their cash flow. Those aged between 28 - 30 made up the highest proportion of AKPK applications at 65% of the total as of March. Most restructured credit facilities faced by the applicants: credit cards (47%), personal loans (40%), mortgages (2%) and others (8%). Some common reasons leading to debt restructuring: additional children, maintaining a particular lifestyle, housing loans and vehicle purchases.

Looks like a renter’s market for office spaces in KL. In JLL (Malaysia)’s latest Q1 2024 Greater KL Property Market Monitor report (view it here), grade A prime office spaces saw the overall vacancy rate decreased to 21.1% (that’s 1 in 5 floor space). In the specific submarkets, KL City experienced a noticeable improvement, with the vacancy rate improving to 28.7% in Q1 2024 from 30.2 in Q4 2023. KL fringe market seems to be in relatively higher demand - vacancy rate improved to 7.7% in the most recent quarter compared to 7.9% in Q4 2023.

Amidst all the tears and broken hearts from casualties in unnecessary wars, weapon makers have to be one of the few to be laughing to the bank in the recent decade. The world spent USD2.4 tril (RM11.42 tril) on military forces last year, the highest amount ever recorded by the Stockholm International Peace Research Institute (SIPRI) since it started monitoring military expenditures in 1949. This marks the ninth straight annual increase, which amounts to about 2.3% of global GDP. The US alone accounted for the most at USD916 bil (38%), followed by China (USD296 bil, 12.3%), Russia (USD109 bil, 4.5%) and India (USD83.6 bil, 3.5%).
View report: Trends in World Military Expenditure, 2023

3. IN MALAYSIA 🇲🇾

Education Ministry sidesteps negative World Bank report on Msia’s education system
Education Minister Fadhlina Sidek avoided discussing a critical World Bank report on Malaysia’s education system – it highlighted that Malaysian children, despite spending 12.5 years in school, achieve only 8.9 years of effective learning. We appear to lag behind Vietnam, where children receive 10.7 years of learning out of 12.9 years in school despite being less economically affluent.

Former Minister Rafidah Aziz agrees that this is worrisome and has called for immediate reforms in the education sector. Meanwhile, Fadhlina only focused on addressing the issue of overcrowded schools in Malaysia, mentioning the use of “makeshift classrooms”. While that’s a separate problem altogether, the Ministry should have responded to questions about the report. It said that 42% of Msian students failed to achieve proficiency in reading by the end of Standard 5. Countries with similar national income have a failure rate of 34%. So, while “makeshift classrooms” is an adequate short-term fix, our education seems to lack a long-term and permanent systematic approach. Add our education system to the Malaysia Ticking Time Bombs List (others on the list: diabetes, pension, healthcare system).
Read: World Bank’s “Bending Bamboo Shoots: Strengthening Foundation Skills”.

Over 100 KFC outlets are suspending operations due to boycotts
QSR Brands (M) Holdings Bhd, which manages the KFC franchise in Malaysia, has confirmed that it is temporarily closing over 100 KFC outlets nationwide. The decision was made due to the boycott movement that has lasted the past six months (and is still going strong) – in response to the brand’s alleged support or connection to Israel. Currently, 108 KFC outlets have ceased operations out of more than 600 outlets across Malaysia and employ 18,000 people, of which 85% are Muslims. Kelantan KFC is most affected, with nearly 80% (21) of its outlets closed, while Johor closed 15 outlets. QSR also runs more than 480 Pizza Hut outlets in Malaysia and Singapore.

The impact on QSR would have the greatest consequence on Malaysians indirectly, relative to other major brands that got boycotted in Malaysia, including McDonald’s (owned by a Saudi company) and Starbucks (publicly-listed, majority-owned by Berjaya Corp). QSR’s sole shareholder is Massive Equity Sdn Bhd, which is 55.63% owned by the Johor state investment arm Johor Corp (JCorp). A 44.01% stake is owned by EPF and private equity giant CVC Capital Partners (51:49), effectively giving EPF a 22.44% stake in QSR. JCorp partnered with EPF and CVC to take KFC Holdings Bhd private in Feb 2013 in a RM5.2 bil deal.

28 National Service Training Programme operators sue the govt, totalling RM108.737 mil
28 National Service Training Programme operators across the country have sued the Madani government for a multimillion-ringgit breach of contract, claiming losses totalling RM108.737 mil. The operators allege that the unexpected contract termination in Sept 2018 led to 27 months of unpaid rent and associated losses until Dec 2020. They argue that the termination was unlawful, citing a void contract clause that allowed the government to terminate the agreement without providing reasons, a clause they claim is unjust.

They claimed to have tried to negotiate with the government but failed to receive any compensation. The operators, who have been managing these camps since 2003, seek compensation for the lost payments, wasted expenditures, and damages, pushing for the disputed contract clause to be declared void. The government plans to reintroduce the program as National Service 3.0 next year. This is probably the third time we’ve heard of plans to reintroduce PLKN…

Shorts

1. YTL shares reach new highs
   Shares of YTL Power International Bhd and its 48.98%-owned YTL Corp Bhd reached new highs, driven by investor interest in stocks with exposure to artificial intelligence (AI). This rise contributed to a 6.54% gain in Malaysia’s KLCI index, with YTL Power (RM39 bil) and YTL Corp (RM35 bil) positioned as the 10th and 13th largest companies on the index, respectively. The rally in Malaysian tech stocks mirrors gains in the US market, particularly after positive AI-driven earnings reports from companies like Alphabet and Microsoft. YTL Power is developing the YTL Green Data Centre Park in Johor, which is set to house significant tech players as customers, further bolstering its market position.

2. RM2.5 mil lost in a love scam with an oppa engineer
   A 46-year-old woman lost over RM2.5 mil to a love scam, deceived by a man she met on Facebook who claimed to be a Korean engineer working for an oil & gas company in Italy. After developing a relationship, he convinced her to lend him money due to “issues” with his company’s internet banking. She made 24 transactions totalling RM2.5 mil, only to realise the scam when she failed to receive repayments from him. As we always say, stay vigilant online folks. Don’t send money to someone you’ve only met online. Had she invested in YTL Power, she would have earned a few hundred thousand at least. NFA. DYOR.

3. Police to investigate victim, no evidence of paedophilia found
   In the “paedophile” case at MRSM Tumpat, Kelantan – the police are now investigating the victim herself as they failed to find any evidence to support her allegations after taking statements from at least 14 individuals, including the accused himself. Kelantan state police chief says that the woman is investigated under Section 233 of the Communications and Media Act, which deals with “wrongful use of communication networks”. The police are “still waiting for the woman’s medical examination report”. This is interesting – why a medical examination report? Is it to check if she is mentally fit or if she has any traces/evidence of abuse? The alleged victim, who is now 24 years old claimed the incident happened when she was 13 years old.

4. AROUND THE WORLD 🌎

World’s largest USD35 bil airport in the making
Dubai has started work on a USD35 bil (RM166.6 bil) airport terminal that is set to have the world’s largest capacity upon completion, the Emirate’s ruler PM and Vice President Sheikh Mohammed bin Rashid Al Maktoum announced on Sunday. The new terminal would be 5x the size of the current Dubai International Airport and handle up to 260 mil passengers annually. Upon completion, all operations at Dubai International Airport will be transferred to the newer Al Maktoum International Airport in the coming years. The latter, which was opened in 2010, will be the new home to Dubai’s flagship carrier Emirates and feature five parallel runways and 400 gates. 

Israel officials wary over potential ICC prosecution 
Israel’s Ministry of Foreign Affairs said on Sunday that it has issued warnings over “rumours” concerning prosection to senior political and military officials that they could soon face arrest warrants by the International Criminal Court (ICC) over the war in Gaza. However, these officials are concerned over a different timeline and not about their recent actions in the war that erupted on Oct 7. The officials have referred in recent days to an ICC probe launched three years ago into possible war crimes committed by Israeli and Palestinian fighters going back to the 2014 Israel-Hamas war and also into Israel’s illegal settlement construction in occupied territory in the West Bank. 

However, the ICC has given no indication that warrants are imminent nor made any comments on the claims. Siapa makan cili, dia rasa pedas. Senior Israeli officials have demanded assurances from the ICC that Israel will not be targeted and played the “anti-Semitism” card should any action take place. Israel is not a member of the court and does not recognise its jurisdiction, but the Palestinian territory was admitted as a member state in 2015, which ICC Chief Prosecutor Karim Khan said the court had jurisdiction over any potential war crimes committed by Hamas fighters in Israel and by Israeli forces in the Gaza Strip.
Learn The difference between the ICC vs International Court of Justice (ICJ)

Intellectual Property Deals

• Music: Hipgnosis x Blackstone
  UK music rights owner Hipgnosis Songs Fund (HSF) has agreed to accept an improved takeover bid of USD1.57 bil from US private equity giant Blackstone, trumping a rival bid from US music group Concord by 4%. HSF, whose catalogue includes Justin Bieber, Shakira, Red Hot Chilli Peppers and 50 Cent (RM2.37), manages the rights to more than 150 of the world’s biggest song catalogues. HSF has been struggling in recent times. It was revealed in December that first-half net losses had tripled due to tumbling sales. It even slashed the value of its song catalogue by more than a quarter to USD1.93 bil. Browse HSF’s full catalogue here. Learn more about HSF’s business model here.

• News and text: OpenAI x Financial Times
  OpenAI has struck a licensing deal with the Financial Times to use its content to develop its AI models and allow ChatGPT to answer queries with summaries attributable to the newspaper. Financial terms were not disclosed. This follows similar deals by OpenAI in recent months with the Associated Press, Axel Springer, Le Monde and Prisa Media. Apart from the licensing deal, both parties announced that the firms will work together to develop new AI products and features for FT readers. It was previously reported that OpenAI offers between USD1 — USD5 mil a year to license copyrighted news articles.
  Fun fact: FT is owned by Japanese media giant Nikkei. Nikkei acquired the 135-year-old FT from Pearson in 2015 for GBP844 mil. Pearson acquired FT back in 1957.

Elon Musk’s fruitful surprise trip to China
Musk unexpectedly travelled to China over the weekend, meeting with high-ranking Chinese officials, including second-in-command Premier Li Qiang. Just last week, he called off a planned trip to India to meet PM Narendra Modi. Tesla struck a deal with the Google of China, Baidu, to use its mapping and navigation technology following which Tesla is expected to get approval to operate its Full Self-Driving (FSD) tech in China. Investors sent Tesla’s stock flying by 12%, adding more than USD60 bil to its market cap as it opens a new huge market for its FSD tech, given it charges USD8k in the US for it and USD99 a month on a subscription.

5. FOR YOUR EYES 📺

1. The FAQ Show takes you on a tour of a bird nest factory operated by recently listed MYMBN Bhd. Premium quality bird nest from Malaysia can be sold to China for up to RM20,000 per kg.

2. TIL: there’s a Best Tax Payer Award organised by LHDN for corporate taxpayers. Apart from paying the highest taxes, these winners (is one truly a winner paying the most taxes? hmm), there are other criteria such as having no tax audit issues in the most recent 4 years of assessment. Below are the 10 pembayar cukai terbaik. The only public-listed company on the list is Time Dotcom Bhd - the company paid taxes of RM143.7 mil in its financial year ending 31 Dec 2023.
   Uniqlo Malaysia is a 45:55 joint venture between Wing Tai Malaysia Bhd and Uniqlo owner Fast Retailing Co Ltd.