Maybank IB Research

PP16832/01/2012 (029059)

Economics

6 July 2011

Malaysia: Strategic Reform Initiatives

Suhaimi Ilias suhaimi_ilias@maybank-ib.com (603) 2297 8682 Ramesh Lankanathan ramesh@maybank-ib.com (603) 2297 8685 William Poh william.poh@maybank-ib.com (603) 2297 8683

Another key ingredient the change recipe

SRIs a commitment to reforms Prime Minister unveiled the Strategic Reform Initiatives (SRIs) on 5th July 2011 which serves as the enablers to boost the countrys competitiveness, on top of complementing the twin transformation programmes i.e. Government Transformation Programme (GTP) and Economic Transformation Programme (ETP). Essentially, SRIs are the other half of ETP i.e. in addition to the 12 National Key Economic Areas (NKEAs). That was two years in the making It all began with the setting up of the National Economic Advisory Council (NEAC) in May 2009 whose task was to come up with the New Economic Model (NEM) for Malaysia to achieve a high-income economy status by 2020. In return, NEAC published two-part reports NEM Part 1: Strategic Policy Direction (30 Mar 2010) and NEM Concluding Part: Strategic Policy Measures (3 Dec 2010). Both reports highlighted the SRIs, which went through several rounds of stakeholder engagements and refinements.
The Passage & Evolution of SRIs

1
NEM: Part 1 Mar 10

2
NEM: Concluding Part Dec 10

3
SRI Labs (500 participants, 13 reports detailing what, how & when to implement) Feb - Apr 11

4
Cabinet Workshop (ownership/ responsibility, governance structure) 19 Apr 11

5
ETP Progress Updates #6 (mentioned about SRIs) 13 Jun 11

6
SRIs officially announced 5 July 11

7
Monthly Updates on Progress/ Annual Report (1Q 12 onwards)

1) Re-energising the private sector 2) Developing quality workforce and reducing dependency on foreign labour 3) Creating a competitive domestic economy 4) Strengthening of the public sector 5) Transparent and market-friendly affirmative action 6) Building the knowledge-based infrastructure 7) Enhancing the sources of growth 8) Ensuring sustainability of growth

1) Reinvigorating the private sector 2) Enhancing innovation 3) Public sector transformation & fiscal reform 4) Intensifying human capital development 5) Narrowing disparities

Operationalise via GTP/ETP and 6 execution clusters

Sources: NEAC, PEMANDU, Maybank IB

A total of 51 recommendations After taking into account of 14 measures that are embedded directly into their natural homes under GTP and ETP, the remaining 37 policies are grouped into six implementation clusters i.e. International Standards & Liberalisation (9 policies) Human Capital Development (9 policies) Public Service Delivery (7 policies) Public Finance (5 policies) Government Role in Business (5 policies) Narrowing Disparities / Bumi SMEs (2 policies)

Malaysia: Strategic Reform Initiatives (SRIs)

SRIs consists of 51 policy measures where 14 are operationalised under GTP and ETP, while 37 are grouped into six execution clusters

14
With natural homes in NKEAs (ETP), NKRAs (GTP)

51
policy measures

37
Grouped into 6 clusters for execution

Source: PEMANDU

What are the key ones? There are several key areas of reforms that we believe are of major interests to market and investors. These are: Indentified levers and enablers to improve the countrys fiscal position via revenue enhancements and expenditure savings (Public Finance), especially to reduce fiscal deficit to -2.8% of GDP by 2015 (2010: -5.6% of GDP). These measures which can save up to RM13b in revenues and savings if implemented between 2H 2011 and 2015 include: 1. Improve tax administration and collection. An array of measures can generate up to RM4,543m revenues if implemented by the Inland Revenue Board (IRB) and The Royal Malaysian Custom Department (RMCD) between 2H2011 and 2015. These measures include stronger enforcement via field audit and investigation coverage, wider tax base, efficient tax submission and collection, revising the depreciation rate of gazette value of used cars, as well as audit-based controls on exporters and importers of liquor and cigarettes in duty free zones. 2. Control Government expenditure. Immediate to mid-term measures such as reduction in travelling expenses, costeffective funding mechanism, reduce overseas training, optimize asset utilization and increase cess for rubber replanting can yield a quick win of RM589m savings in spending can be achieved. Longer term measures include the on-going subsidy rationalisation, right-sizing the public sector, reform civil service pension scheme, and reviews on the transfer payments to statutory bodies.

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Malaysia: Strategic Reform Initiatives (SRIs)

3. Enhance transparency in procurement process e.g. reduce the threshold value for quotations and tenders to RM50,000 from RM200,000; underperforming suppliers and services providers registered with the Ministry of Finance will be blacklisted / eliminated; instituting tougher paid up capital and financial performance metrics for suppliers. 4. Other measures highlighted include rationalise corporate tax incentives; broad-based tax (GST); accrual accounting; outcome-based budgeting.

Potential RM13b in revenue generation and expenditure savings under Public Finance SRI, 2H2011-2015
Savings/ Revenue (RM m) Procurement Indirect Tax * Indirect Tax Direct Tax Expenditure Control Rationalise Incentives Total without GST GST@ 4% TOTAL 591 689 400 3,454 590 1,016 6,739 6,268 13,007 Legend 2H 2011-2012 2012-2013 2014-2015

2,200

4,200

6,200

8,200

200

10,200

* Gazetted imported used cars depreciation rate, enhance enforcement Source: PEMANDU

Measures to boost existing direct and indirect tax revenues , 2H20112015

Direct Tax: LHDN

Widen Field Audit & Investigation Coverage

Est Value (RMm)

Indirect Tax: RMCD

Revised depreciation rate of gazette value of used cars Audit base control on exporters and importers of liquor and cigarette in Duty Free Zone

Est Value (RMm)

2,875

439

Widening the Tax Base

163

400

Improve Efficiency in Tax Submission & Tax Collection

434

Enhance enforcement/ audit

250

Source: PEMANDU

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12,200

Malaysia: Strategic Reform Initiatives (SRIs)

Measures to save on Government spending, 2H2011-2015

600 500 400 300 200 100 0 1. Increase 2. Reduce 3. Cost 4. Reduce 5. Optimise cess for Govt. effective overseas asset rubber travelling funding training utilisation replanting expenses mechanism
Source: PEMANDU

45 79 118 291 57

589.9

Total

GST (Public Finance). Meanwhile, the Goods and Services Tax (GST) is slated to be in place by 2014 and according to the PEMANDUs Public Finance SRI Lab, it could generate incremental revenues of RM6.3b at 4% rate and RM9.7b at 5% rate i.e. in addition to the revenues from the Sales Tax and Services Tax (SST averaging RM12b p.a. in 2008-2010) that the GST directly replaces. Divestment of GLICs stakes in listed companies (Government Role in Business). In principle, the Government had earlier indicated its desire to play facilitative role in business as opposed to being a significant investor, to improve the capital markets liquidity and create more space and opportunities to private investment. In this regard, several pathways to divestment have been identified i.e. paring down of stakes, listing, outright sales, involving 33 companies that have been short-listed. The action plan for 25 companies has been identified paring down stakes in 5, listing of 7 and the sales of 21. In addition, relevant Ministries and States will establish GLC Monitoring Units (GMUs) to monitor the performance of their respective government-linked entities and state-owned enterprises, with information on their performance to be made public, replicating the Putrajaya Committee on GLCs that was initiated to kick-start the Khazanah-led GLC Transformation Programme. At macro level, four areas have been Government presence in business. These are: identified for

1. as co-investor with private sector (e.g. private-public partnership (PPP) and regional corridor development projects); 2. projects with long gestation periods and large seed capital or catalytic/new technology are needed (e.g. biotechnology, nanotechnology); 3. national security reasons where business/projects must be domestically-owned (e.g. procurement of defence technology; food security); and 4. national infrastructure (e.g. public transport such as MRT/LRT; renewable energy)

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Malaysia: Strategic Reform Initiatives (SRIs)

Services sector liberalisation (International Standard & Liberalisation), with a view to boost private and foreign direct investment so that the sectors share to GDP can be lifted from the current 57% to 70%-80% prevalent among the developed nations. This is consistent with Malaysias next phase of economic development en-route to becoming a high-income economy by 2020 i.e. the post-industrialisation phase. The targeted services sectors include healthcare, education and business services (professional services).

Services Sector Liberalisation

Targeted Sectors Healthcare GNI Contribution RM15.2b Historical Growth Rate Liberalisation Recommendations Private Hospitals remove foreign equity restrictions Specialists relax restrictions e.g. doctors, dentists International Schools relax foreign equity with strong quality guidelines Teaching Permits extend validity period for up to 5 years Accounting No foreign equity restrictions, encourage diverse form of practices (.e. body corporates, limited liability partnerships) Legal Foreign legal firms and lawyers allowed to practice in Malaysia via International Joint Law Partnerhsips Engineering Improved selection system and limit liability period of professional engineers to 15 years in tandem with removal of equity restrictions Architects Ease of entry foreign architects with registration under the Board of Architects

8.8%
Education RM27.1b

6.8%
Business Services (Professional Services) RM19.5b

7.9%

Source: PEMANDU

Minimum wage (Human Capital Development), which is planned for introduction by end-2011. Malaysia is moving a step closer towards this goal after the Parliament passed the National Wages Consultative Council Bill last week. Other than this, the Government will also modernize the labour legislations involving 4 Acts and 63 proposed amendments. Balancing Bumiputera agenda with Bottom-40% welfare (Narrowing Disparities) via market-friendly and transparent meritbased and needs-based affirmative action, on top of the expected political consideration. A High Performing Bumiputera SMEs programme to develop Bumi entrepreneurs across as 12 NKEAs will be rolled out. Under this programme, Government, Government Agencies, GLCs, GLICs and the private sector will work together to provide business opportunities (e.g. procurement, outsourcing and vendor development), and promote capacity building (e.g. human capital development, funding, R&D, marketing). The programme will have strict qualifying/entry criteria (e.g. minimum 50% of revenue from non-Government sources, 2-5 years of profitability track record, management team with mix of Bumi and non-Bumi) as well as clear exit/graduation criteria (e.g. become large companies; drop out due to missing on performance benchmark or key milestones). Meanwhile, the welfare of the bottom 40% of the population is being addressed by the Low Income Household NKRA under GTP.

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Malaysia: Strategic Reform Initiatives (SRIs)

Some of these SRI measures are already operational or at least have the foundations in place for implementation and execution 14 are already operational via the National Key Result Areas (NKRAs) of GTP and ETPs NKEAs. These include: 1. Pursue administrative reforms in the Judiciary (GTP NKRA: Crime). 2. Break the poverty cycle through education (GTP NKRA: Education). 3. Adopt a single comprehensive database on the poor; establish an overarching policy on social assistance programme (GTP NKRA: Lower Income Household). 4. Addressing transportation and housing needs (GTP: NKRA: Lower Income Household; Rural Basic Infrastructure; Public Transportation). 5. Sustainable Agriculture (ETP NKEA: Agriculture). 6. Energy resource sustainability; promote green growth and energy efficiency (ETP NKEA: Oil, Gas & Energy). 7. Accelerate to rollout of high-speed broadband (ETP NKEA: Communication, Content, Infrastructure). Services sector liberalization has already started since 2009 with the measures to open up the financial (new licenses for conventional & Islamic banking, insurance & takaful) and nonfinancial (27 sub-sectors) services. Competition Law is one of the three components of the International Standards & Liberalisation SRI. It was passed by the Parliament on 21 Apr 2010, gazetted in June 2010, and will be effective 1 Jan 2012. The Government has established the Competition Commission with the members drawn from both the private and public sector, and there will be effective advocacy programme to support the Commission in educating businesses and the public on its role in dealing with anti-competitive agreements (e.g. price-fixing, market sharing, bid-rigging, limiting/controlling production) and abuse of dominant market position (e.g. unfair/predatory pricing, tying/bundling, refusal to deal). The establishment of Unit Peneraju Agenda Bumiputera (Teraju) in Feb 2011 to lead, coordinate and drive Bumiputera economic participation and to strengthen the Bumiputera development agenda. GST Bill was already presented in the Parliament for its first reading back in Dec 2009.

Therefore, not starting from zero or scratch This is in line with what we have seen earlier with regards to GTP and ETP. In short, the Government policy-making process is now more inclusive and structured, with clear deliverables and implementation/execution timeline. This represents a departure from the stereotype that has shaped perception about Malaysia policies in the past i.e. long on announcements, short on deliveries.

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Malaysia: Strategic Reform Initiatives (SRIs)

With robust governance structure to see it through... Ownerships of the six clusters of SRIs have been identified, and underlining the commitment to reforms is the fact that the PM himself is in charge of two SRIs i.e. Public Finance and Governments Role in Business. With PEMANDU overseeing implementation, the proven implementation framework, reporting structure and communication (especially the dissemination of information on updates and progress) under GTP and ETP is automatically adopted and applied for SRIs to ensure and guarantee execution.
Ownership Structure of SRIs
Public Finance
YAB Dato Sri Najib Razak (Prime Minister of Malaysia, Finance Minister) YB Dato Seri Ahmad Husni Hanadziah (Finance Minister 2)

Human Capital Development

YAB Tan Sri Dato Haji Muhyiddin Yassin (Deputy Prime Minister of Malaysia, Education Minister) YB Datuk Dr. Subramaniam (Human Resources Minister)

Public Finance Delivery

YBhg Tan Sri Sidek Hassan (Chief Secretary to the Government)

SRIs

Governments Role in Business

YAB Dato Sri Najib Razak (Prime Minister of Malaysia, Finance Minister)

International Standards & Liberalization

YB Dato Sri Mustapa Mohamad (Min. of International Trade & Industry) YB Dato Sri Ismail Sabri Yaakob (Min. of Domestic Trade, Cooperatives & Consumerism) YB Datuk Seri Dr. Maximus Ongkili (Min. of Science,. Technology & Innovation)

Narrowing Disparaties / Bumi SMEs

YB Tan Sri Nor Mohamed Yakcop (Min. in PM Dept (Economic Planning Unit))

Source: PEMANDU

Overall, a positive development on commitment and clarity to reforms... While the key SRI measures we highlighted (e.g. public finance, GST, Government role in business, services sector liberalisation, minimum wage, Bumiputera agenda) are not new, what is important is that the detailed documentation of the measures, targets, deliverables and milestones goes a long way in providing greater level of clarity and certainty on Malaysias commitment to reforms.

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Malaysia: Strategic Reform Initiatives (SRIs)

Strategic Reform Initiatives Public Finance

Objective Owner Create fiscal space by increase revenue for the country and reducing cost Dato Sri Najib Razak Prime Minister and Minister of Finance 1 Dato Seri Ahmad Husni Hanadziah Minister of Finance 2 1.Improve tax compliance and administration The current tax gap the difference between projected and actual collection- stands at about 20% compared to some 10 to 15% in developed countries. As such, there is a potential upside RM13 billion. Six initiatives will be implemented to improve tax collection such as widening the audit and investigation coverage, widening the base tax, improving efficiency in tax submission and collection, revising depreciation rate of gazette value of used cars, employing audit-based control on exporters and importers of liquor and cigarette in DFI and FCZ, and enhancing Customs enforcement.

Lab Recommendations

2. Rationalization of corporate tax incentives Review incentives and deductions offered to corporations including step-down on Reinvestment Allowance, step-down from full to partial exemption on shipping income review of pioneer status and various types of tax deductions, among others.

3.Broad based tax The broad based tax regiment will be reviewed in tandem with personal and corporate taxation Introduce GST, which will replace the current sales tax and service tax. The GST has a positive impact on the countrys fiscal position. The size of price is RM6 to Rm10 billion dependent on the GST tax rate of 4 or 5%. GST will not impact the lower income group as most of the basic products and services will be exempted or zero-rated such as rice, raw meat, fresh fish, vegetables, domestic public transportation and healthcare services. SMEs will also be govern some incentives to reduce the cost of implementing GST. In the first year, non-tax packages will also be provided when GST is implemented.

4. Expenditure control Control the Governments expenditure in four areas: rationalize subsidies, procurement, travel expenses and transfer payment to statutory bodies. Currently, the government is gradually rationalizing subsidies.

5. Transparent procurement Enhance transparency in the procurement process. For example, the threshold value for quotations and tenders via e-bidding has been reduces from RM200,000 to RM50,000.

6. Accrual accounting Accrual accounting to be implemented and it will a more efficient, transparent and effective management through faster of information on resource consumption or cost savings. This in turn will support the sustainability of Malaysias fiscal policies. This will ensure that government expenditure is anchored in clearly defined outcomes and measurable result, creating value for money through targeted programme implementation, and minimizing redundancy of programmes.

Sources: PEMANDU

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Malaysia: Strategic Reform Initiatives (SRIs)

Strategic Reform Initiatives Governments Role in Business

Objective Crystalising the role of government in Business to ensure greater liquidity in the capital markets and to provide more opportunities for private investment. Dato Sri Najib Razak, Prime Minister 1.Establishing Governments role in business The government will work at ensuring clear separation in regulatory and business functions to avoid conflict of interests and encourage a level-playing field to boost private sector investment. The governments involvement in business will continue in four areas: o o o o When the private sector needs co-investment in projects that are GNI positive for the nation. For example, the regional corridor developments.\ Business that has to be owned domestically in the interest of national security such as the procurement of defence technology, food security and related matters Business that involve large growth capital, are catalytic or entail new technology. National infrastructure projects such as those involving biotechnology, renewable energy, public transport system and others.

Owner Lab Recommendations

2. Divestment plan for Government-Linked Companies (GLCs) via a white room Divestment strategy will be put in place for each investment: o o Portfolio of GLC will be rationalized commencing with 33 companies that have been identified as ready for divestment through a stake pare-down or listing or outright sale. An action plan involves: Pare-down: five companies Listing: seven companies Outright sale: 21 companies 24 companies are expected to be involved in this exercise in 2011-2012 As each are at a different stage of preparation for divestment, announcements will be made over the course of the year by the organizations.

o o

Proceeds will be channeled to the Federal Government Divestment Account (Ministry) or a State Account (State Government) for the following purpose: o o o Service the countrys national/ states deficit Invest in existing funds Facilitation fund for businesses in which the government can be involved based on the four areas, as stated above.

3. Governance for state-owned companies For the remaining businesses, a proper governance structure will be established. Replicating the success of the PCG (Putrajaya Committee on GLCs) and through the best practices from countries such as New Zealand, relevant states and ministries will establish a GLC Monitoring Unit (GMU) to monitor the performance of their respective government linked entities and state owned enterprises. The GMU will prioritize its monitoring efforts in relation to performance issues, privatization or divestment and risks, and benchmarking international standards. This will ensure that the balance sheet is fit-for-purpose and provide an independent analysis data to support the responsible Ministries/State Government in their governance and decision making. Performance information will be made available to the public through its website to ensure transparency and accountability.

Sources: PEMANDU

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Malaysia: Strategic Reform Initiatives (SRIs)

Strategic Reform Initiatives Human Capital Development

Objective Owner Transforming the Malaysian workforce and workplace for high-income economy Tan Sri Dato Hj Muhyiddin Hj Mohd Yassin Deputy Prime Minister Datuk Dr. S. Subramaniam, Minister of Human Resources 1.Modernise labour registration Four Acts and wide ranging proposed amendments will be reviewed and changed upon alignment with various stakeholders. Commencing with the Employment Act, Industrial Act, Followed by Trade Unions Act and legislation related to Foreign Workers. 2. Minimum Wage The Ministry of Human Resources is targeting to announce the minimum wage by the end of this year. Critical move as Malaysia move towards productivity inked wage system where employees are fairly compensated for the work that they do. The Ministry of Human Resources has been leading the effort for minimum wage and are strong proponents of the National Wages Consultative Council Bill 2011 which was passed by Parliament on 30 June 2011. o It will be tasked to conduct studies concerning minimum wage and provide recommendations to the government on the minimum wage rates and coverage according to sectors, types of regional areas and other matters relating to wages. 3.Labour Safety net Some of the labour safety nets to encourage greater mobility and flexibility in the nations workforce include: o Introduction of unemployment insurance, supported by upskilling and retaining programmes for workers and upgraded employment services These reforms provide clarity and ensure that the appropriate enforcement is in place to safeguard the fair treatment of employees. It will also ensure that obsolete jobs are not protected. Cost of labour management in business is also expected to reduce. 4. Labour market analysis Government plans to set up the Institute of Labour Market Information and Analysis (ILMIA). ILMIA will provide in-depth analysis on the labour market to support the public sector in formulating policies and in decision making. o Provide support the private sector by providing a comprehensive analysis and forecasts of workforce demand and supply by industry and sub sector. 5. Leveraging womens talent Government will adopt policies that leverage womens talent to raise productivity within the workforce. o Look into other initiatives to retain and increase womens participation in the workforce such as flexi-work arrangements and childcare support. 6. Strengthen HR Management A series of programmes will be developed to transform the Human Resources Development Fund (HRDF) The objective is to support SMEs by providing them with the opportunities to adopt best practices in HR which will enables SMEs to attract as well as retain a high quality and productive workforce SMEs are critical to the economy, contributing 31% of the GDP and employing 56% of the workforce. 7. Upskilling and upgrading the workforce Talent Corporation will be involved in the upskilling and upgrading of the workforce. Quick wins for four sectors; Oil, Gas and Energy, Tourism, Business Services-Outsourcing, and Electrical and Electronics. A detailed programme for these areas is being developed in tandem with the NKESs and upcoming Cities and Corridors Lab. For example, the Electrical and Electronics National Talent Enhancement Programme: o A 12-month apprenticeship trough partnership in the industry. o To accelerate the development of a skilled workforce in green technology. o Programme rolled out in four states and apprentices will receive a holistic development whilst at the host company, making them industry-ready.
Sources: PEMANDU

Lab Recommendations

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Malaysia: Strategic Reform Initiatives (SRIs)

Strategic Reform Initiatives International Standards & Liberalisation Objective To increase overall competitiveness through three areas: Liberalisation of services Standards Competition Act 2010 Dato Sri Mustapa Mohamad, Minister of International Trade and Industry Dato Sri Ismail Sabri Yaakob, Minister of Domestic Trade, Co-operatives and Consumerism Datuk Seri Dr. Maximus Ongkili, Minister of Science, Technology and Innovation 1.Liberalisation of services Key focus area for liberalization is the service sector o Currently contributes about 57% of Malaysias economy compared to 70 to 80% for developed countries o Malaysia will liberalise the top services sector based on their current and potential contribution to the GNI. o Phased liberalization beginning with the healthcare, education and Business Services (Professional Services) The following are the recommendations for the 3 sectors to be implemented in phases: o Healthcare: Remove restrictions to foreign equity participation in the setting up of specialized private hospitals with minimum number of beds Relaxing entry restrictions for foreign specialists such as doctors and dentists o Education: Gradual relaxation of foreign equity restrictions in international schools while maintaining guidelines to ensure quality and standard of education institutions Extending teaching permits validity to up to 5 years. o Business Services (Professional Services) Remove equity restrictions for accounting, legal and engineering services. Relaxing entry conditions for foreign lawyers, engineers and architects to work in Malaysia. 2. Standards Malaysia will work towards improving the quality of goods and services as well as improving access to international markets. At the ISL lab, a tool-kit was developed to review the standards for five entry point products with the view to replicate this across relevant products and standards. Focus will be on the products and services where Malaysia has competitive advantage and the potential to be a global leader. o This includes products such as orthopaedic implants, halal pharmaceutical supplements, cyber security, pineapples, seaweed, smart home appliances, as well as green label paint and ceramic tiles. 3.Competition Act 2010 The Competition Act 2010 which was gazetted by Parliament in June last year will come into force in January 2012 The Act will: o Promote a competitive environment and give foreign investors more confidence in Malaysias business practices. o Safeguard against anti-competitive practices and abuse of market power. This will promote growth competition and private investment and market dynamism. The government has established the Competition Commission with commissioners drawn from the public and private sectors o There will be a strong advocacy programme to support the Commission in educating the businesses and the public. o The Commissions role includes stamping out cartels and anti-competitive behavior.
Sources: PEMANDU

Owner

Lab Recommendations

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Malaysia: Strategic Reform Initiatives (SRIs)

Strategic Reform Initiatives Narrowing Disparaties

Objective Two Objectives Uplift low-income households irrespective of race Developing market friendly, transparent, needs and merit based affirmative action to uplift Bumiputera SMEs. Tan Sri Nor Mohamed Yakcop, Minister in The Prime Ministers Department, Economic Planning Unit Unit Peneraju Agenda Bumiputera (TERAJU) 1.Uplifting low income households This programme is based on the National Economic Advisory Councils recommendations as part of the comprehensive plan to uplift low-income households, which account for 40% of Malaysians, irrespective of race. Plans are already in place under the National Key Results Area (NKRAs) for Low-Income Households, Rural Basic Infrastructure and Education.

Owner

Lab Recommendations

2. High-performing Bumi SMEs (HPBS) To roll out HPBS programme that will develop the next generation of world-class Bumiputera entrepreneurs across all 12 National Key Result Areas (NKRAs) championed by TERAJU. o SMEs need to scale up, accelerate their growth and must be able to compete in the open market, without heavy reliance on Government contracts. o Government, Government Agencies, Government Linked Investment Companies (GLICs), Government-Linked Companies (GLCs) and the private sector will work together to provide business opportunities, talent and funding. o The programme will have stricter up or out scheme to drive performance and greater selfreliance. o Through the proposed divestment of the Governments non-core assets, business functions can also be outsourced to participants of the BPBS programme.

Sources: PEMANDU

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Malaysia: Strategic Reform Initiatives (SRIs)

Strategic Reform Initiatives Public Service Delivery

Objective Two objectives Create a lean, efficient and facilitative Government in business and related services Reform the public service commission to create a high-performing civil service Tan Sri Mohd Sidek Haji Hassan, Chief Secretary to the Government of Malaysia 1.Lean, efficient and facilitative Government Key initiatives include removing overlapping processes and standardizing functions with a clear governance structure to ensure execution and compliance. Implementation of Business Process Re-engineering (BPR) across all business licensing to eliminate or shorten the time taken for licenses approval. o Business licenses application more efficient with enhanced online license application system o All business related licenses to be approved online. o Allow key owners to be identified, experts appointed and current processes reviewed. Introducing real time performance monitoring complemented real time feedback rating mechanism. o Pilot programme: Malaysians who visit 92 police stations in Selangor will soon be able to rate the efficiency of the counter services via SMS. o Depending on the success of the programme with the police force, the SMS rating service could be extended to assessing the services provided by taxi drivers, as well as at immigration and public hospitals. Greater public involvement in high level policy review through focus groups, open days as well as townhalls.

Owner Lab Recommendations

2. High-performing civil service Strategic HR practices be adopted to replace current conventional HR practices to improve governance. HR practices to be integrated to produce a flatter organization structure. Open recruitment within the civil service and between public-private sectors for senior and middle management posts. o Aim is to engineer a high-performing civil service by attracting suitable talent into leadership positions. Movement between public and private sectors as well as within the public sector to be hassle-free with: o Introduction of mobility characteristics into new superannuation schemes. o Enhancement of current pension scheme.

Sources: PEMANDU

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Malaysia: Strategic Reform Initiatives (SRIs)

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The respective analyst maintains a coverage universe of stocks, the list of which may be adjusted according to needs. Investment ratings are only applicable to the stocks which form part of the coverage universe. Reports on companies which are not part of the coverage do not carry investment ratings as we do not actively follow developments in these companies.

Some common terms abbreviated in this report (where they appear):

Adex = Advertising Expenditure BV = Book Value CAGR = Compounded Annual Growth Rate Capex = Capital Expenditure CY = Calendar Year DCF = Discounted Cashflow DPS = Dividend Per Share EBIT = Earnings Before Interest And Tax EBITDA = EBIT, Depreciation And Amortisation EPS = Earnings Per Share EV = Enterprise Value FCF = Free Cashflow FV = Fair Value FY = Financial Year FYE = Financial Year End MoM = Month-On-Month NAV = Net Asset Value NTA = Net Tangible Asset P = Price P.A. = Per Annum PAT = Profit After Tax PBT = Profit Before Tax PE = Price Earnings PEG = PE Ratio To Growth PER = PE Ratio QoQ = Quarter-On-Quarter ROA = Return On Asset ROE = Return On Equity ROSF = Return On Shareholders Funds WACC = Weighted Average Cost Of Capital YoY = Year-On-Year YTD = Year-To-Date

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This report is for information purposes only and under no circumstances is it to be considered or intended as an offer to sell or a solicitation of an offer to buy the securities referred to herein. Investors should note that income from such securities, if any, may fluctuate and that each securitys price or value may rise or fall. Opinions or recommendations contained herein are in form of technical ratings and fundamental ratings. Technical ratings may differ from fundamental ratings as technical valuations apply different methodologies and are purely based on price and volume-related information extracted from Bursa Malaysia Securities Berhad in the equity analysis. Accordingly, investors may receive back less than originally invested. Past performance is not necessarily a guide to future performance. This report is not intended to provide personal investment advice and does not take into account the specific investment objectives, the financial situation and the particular needs of persons who may receive or read this report. Investors should therefore seek financial, legal and other advice regarding the appropriateness of investing in any securities or the investment strategies discussed or recommended in this report. The information contained herein has been obtained from sources believed to be reliable but such sources have not been independently verified by Maybank Investment Bank Bhd and consequently no representation is made as to the accuracy or completeness of this report by Maybank Investment Bank Bhd and it should not be relied upon as such. Accordingly, no liability can be accepted for any direct, indirect or consequential losses or damages that may arise from the use or reliance of this report. Maybank Investment Bank Bhd, its affiliates and related companies and their officers, directors, associates, connected parties and/or employees may from time to time have positions or be materially interested in the securities referred to herein and may further act as market maker or may have assumed an underwriting commitment or deal with such securities and may also perform or seek to perform investment banking services, advisory and other services for or relating to those companies. Any information, opinions or recommendations contained herein are subject to change at any time, without prior notice. This report may contain forward looking statements which are often but not always identified by the use of words such as anticipate, believe, estimate, intend, plan, expect, forecast, predict and project and statements that an event or result may, will, can, should, could or might occur or be achieved and other similar expressions. Such forward looking statements are based on assumptions made and information currently available to us and are subject to certain risks and uncertainties that could cause the actual results to differ materially from those expressed in any forward looking statements. Readers are cautioned not to place undue relevance on these forwardlooking statements. Maybank Investment Bank Bhd expressly disclaims any obligation to update or revise any such forward looking statements to reflect new information, events or circumstances after the date of this publication or to reflect the occurrence of unanticipated events. This report is prepared for the use of Maybank Investment Bank Bhd's clients and may not be reproduced, altered in any way, transmitted to, copied or distributed to any other party in whole or in part in any form or manner without the prior express written consent of Maybank Investment Bank Bhd and Maybank Investment Bank Bhd accepts no liability whatsoever for the actions of third parties in this respect. This report is not directed to or intended for distribution to or use by any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction where such distribution, publication, availability or use would be contrary to law or regulation. Published / Printed by

Maybank Investment Bank Berhad (15938-H) (A Participating Organisation of Bursa Malaysia Securities Berhad) 33rd Floor, Menara Maybank, 100 Jalan Tun Perak, 50050 Kuala Lumpur Tel: (603) 2059 1888; Fax: (603) 2078 4194 Stockbroking Business: Level 8, Tower C, Dataran Maybank, No.1, Jalan Maarof 59000 Kuala Lumpur Tel: (603) 2297 8888; Fax: (603) 2282 5136 http://www.maybank-ib.com

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