PublicInvest Research

Author: PublicInvest   |   Latest post: Tue, 19 Feb 2019, 10:13 AM


Technical Buy - GAMUDA (5398)

Author: PublicInvest   |  Publish date: Tue, 19 Feb 2019, 10:13 AM

  • Target Price RM3.00, RM3.10
  • Last closing price RM2.83
  • Potential return 6.0%, 9.5%
  • Support RM2.76
  • Stop Loss RM2.73

Possible for further upside. GAMUDA is recovering from its congestion phase. RSI and MACD indicators currently signal reasonable entry level, with anticipation of continuous improvement in both momentum and trend in near term. Should resistance level of RM3.00 be broken, it may continue to lift price higher to subsequent resistance level of RM3.10.

However, failure to hold on to support level of RM2.76 may indicate weakness in the share price and hence, a cut-loss signal.

Source: PublicInvest Research - 19 Feb 2019

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Kossan Rubber Industries Berhad - 4QFY18 Within Expectations

Author: PublicInvest   |  Publish date: Tue, 19 Feb 2019, 10:11 AM

Kossan’s reported a full year net profit of RM200.8m in FY18, which came in within ours and consensus’ estimates, at 99 % and 98% respectively. In FY18, Kossan also recorded the highest ever revenue, surpassing the RM2bn mark (full year revenue at RM2.14bn,+9.5% YoY). The better performance was mainly due to higher sales volume and ASP for the glove segment. Going forward, we expect the Group’s growth to be supported volume growth from Plant 18 & Plant 19 and the expansion in Bidor (45.0bn pcs pa). We maintain our Neutral call, with an unchanged TP of RM4.34, which is based on 24x CY19F EPS (+0.5SD above its 5-year historical forward mean).

  • Gloves. Kossan’s gloves division reported a higher revenue of RM519.4m (+25.4% YoY, +2.7% QoQ), while PBT stood at RM62.5m (+16.7% YoY, - 0.9% QoQ). The better performance was mainly due to stronger demand growth for gloves, with higher ASP (+6.1% YoY) coupled with greater volume sold (+9.7% YoY). We believe the extra capacity from Plant 17, which was fully commissioned in November 2018, also contributed to the growth. Better result was achieved despite higher natural gas cost (+22.8% YoY), higher nitrile prices (+9.3% YoY) as well as less favourable forex translation rate (-6.2%).
  • Technical Rubber Products (TRP). TRP segment recorded improved performance, revenue rose to RM50.4m (+19.42 YoY, +9.23% QoQ), while PBT increased to RM8.5m (+91.3% YoY, +22.9% QoQ). Increased sales deliveries and sales of higher margin products was the main contributor to TRP’s positive performance.
  • Outlook. Fully commission of Plant 17 (1.5bn pcs p.a) in November 2018 has brought the group’s total installed capacity to 26.5bn pcs p.a. Capacity from Plant 17 has been fully sold out, supporting the growth for 1QFY19. Construction works for both Plant 18 (2.5bn pcs p.a.) and Plant 19 (3bn pcs p.a.) are on track, with full commissioning expected to be in 2QCY19 and 4QCY19 respectively. Additional capacity from these two plants should support the Group’s growth in FY19. Moving forward, all eyes will be on Kossan’s expansion in Bidor, where it will have an additional installed capacity of 45bn pcs p.a. upon full commission of all 12 plants. The Bidor expansion is currently at the planning stage and is expected to take 8 years to complete.

Source: PublicInvest Research - 19 Feb 2019

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Kuala Lumpur Kepong - Dragged by Weaker CPO Prices

Author: PublicInvest   |  Publish date: Tue, 19 Feb 2019, 10:05 AM

Kuala Lumpur Kepong (KLK) posted a core net profit of RM175.2m (YoY: -45.2%) for 1QFY19 after stripping out i) provision for and write-off of inventories (RM19.6m), ii) surplus on government acquisition of land (RM22.4m), iii) foreign exchange gain (RM33.3m) and iv) gain on derivatives (RM39m). The results were broadly in line with our numbers, making up 21% but it missed consensus expectations by 7%. Overall, the upstream plantation was severely affected by the continuous poor CPO price performance while manufacturing segment was dragged by China and EU operations. No dividend was declared for the quarter. Maintain Neutral with an unchanged TP of RM22.86.

  • 1QFY19 revenue (QoQ: -2.5%, YoY: -21.1%). Compared to 1QFY18, the weaker group revenue was mainly hit by a decline in both plantation and manufacturing sales. Plantation sales tumbled 58% YoY to RM1.7bn, dragged by a steep decline in palm oil product prices despite an increase of FFB production by 7% YoY. Average recorded CPO price dropped 29% YoY to RM1,840/mt while average palm kernel price dipped from RM2,488/mt to RM1,375/mt. Manufacturing sales declined 12.4% YoY to RM2.2bn on the back of weaker sales volume from China and European operations, which was partly cushioned by stronger Malaysian sales. Property sales doubled to RM39.8m, bolstered by ongoing project called Hemingway Residence in Bdr Sungai Buloh, which consists of superlink terrace houses and semi-detached homes.
  • 1QFY19 core net profit (QoQ: +14.7%, YoY: -45.2%). The Group’s core earnings sank 45% YoY to RM175m for the 1Q. Plantation earnings halved to RM127m, dragged by an increase in cost of production and weaker selling prices. Manufacturing segment also saw weaker earnings, down 29% YoY to RM98m on the back of weaker earnings contribution from China and EU operations despite better earnings from Malaysia. Oleochemical earnings dipped 31% YoY to RM94.5m while other manufacturing units jumped nearly 6-fold to RM3.5m. On the other hand, property earnings surged 6-fold to RM11.1m on the back of favourable property sales in Bandar Seri Coalfields. The farming business also delivered impressive earnings growth, up 77% to RM56.5m, driven by an increase in crop production as a result of better yields and larger cropped area.
  • Outlook guidance. It expects to see CPO prices hovering around RM2,100-2,200/mt for the next three months. On FFB production growth, management expects to see FFB production surpassing 4m mt level for FY19 with an expected growth of 5-6%.

Source: PublicInvest Research - 19 Feb 2019

Labels: KLK
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TSH Resources - Fire Incident at Ekowood Operations

Author: PublicInvest   |  Publish date: Tue, 19 Feb 2019, 10:04 AM

There was a fire incident at TSH’s Ekowood operations in Gopeng, Perak yesterday morning. The estimated loss has yet to be ascertained as the affected areas have been sealed by the Fire Department and are inaccessible now. All assets are sufficiently insured and adequate insurance coverage has been taken for consequential business loss. We also understood that the entire hardwood flooring production line is left stranded now as one of the lines was affected. The estimated timeline for production recovery cannot be ascertained now pending authority investigation. Maintain Neutral with an unchanged TP of RM0.98.

  • Background of the Ekowood operations. Ekowood International, which is the company’s wholly-owned subsidiary, is principally involved in manufacturing and marketing of engineered hardwood flooring. The wood flooring products are manufactured in Gopeng, Perak. Export market contributes to the bulk of its sales with its key markets being Australia, New Zealand, China, Europe and US. In the local market, the Group also undertakes installation of the flooring, mainly for newly built condominiums. For the first 9 months 2018, Ekowood operations contributed about 5% of Group’s total sales.
  • Expecting a one-off provision in 1QFY19. We expect to see a one-off provision next quarter arising from this fire incident though the amount could not be quantified at this juncture.
  • Strong FFB production seen in 4Q18. TSH continued to delivered double-digit growth in FFB production, up 21.9% YoY, making an encouraging full-year FFB production growth of 21% in 2018. The jump in FFB production was the back of bumper harvest in Kalimantan while Sabah production remained steady.
  • Stellar share price performance since early-2019. TSH had a decent share price performance, rising more than 12% YTD, boosted by the recovery in CPO price performance, which has gone up by 9% to RM2,119/mt.

Source: PublicInvest Research - 19 Feb 2019

Labels: TSH
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PublicInvest Research Headlines - 19 Feb 2019

Author: PublicInvest   |  Publish date: Tue, 19 Feb 2019, 10:03 AM


Global: Economy stuck with downside risks in near term. The global economy’s loss of momentum has left expansion now looking like its weakest since the global financial crisis, a development that’s already sparked a dramatic shift among central banks. A UBS model suggests world growth slowed to a 2.1% annualized pace at the end of 2018, which it says would be the weakest since 2008-2009. An early reading for this quarter shows a slight improvement, but the numbers still mean there’ll need to be a dramatic improvement to reach the 3.2% pace UBS has forecast for the three months as a whole. Unfortunately, there hasn’t been much sign of that. (Bloomberg)

EU: Greece at risk of not getting euro zone cash as reforms lag. Greece is at risk of not getting some EUR750m next month that it won under a debt relief deal with the euro zone last year because it has not completed agreed reforms, euro zone officials said. The money is part of about EUR4.8bn of profits from Greek bonds held by euro zone central banks, to be handed back to Athens by mid-2022 in semi-annual tranches and a waiver of the step-up interest rate margin on part of the euro zone loans. Together, the two measures add up to EUR750m every six months. The money was designed as an incentive for Athens to continue with hard-won reforms adopted under its three bailouts since 2010, worth more than EUR280bn in total. (Reuters)

EU: German growth to remain subdued at least in first half of 2019, says Bundesbank. Germany’s economy will continue to struggle in the first half of the year but indicators still suggest that the slowdown could be temporary with a rebound in the second half possible, the Bundesbank said in a monthly economic report. The German economy stagnated in the 4Q of last year and policymakers are increasingly concerned that weakness in Europe’s biggest economy could be bigger and longer than earlier thought, a risk to the entire continent. Weak orders in manufacturing, increasingly gloomy sentiment indicators and sluggish investments all suggest that the economy is unlikely to regain momentum during the winter months. (Reuters)

UK: Housing affordability improves at fastest pace in 8 years - right move. UK housing affordability improved at the fastest pace in eight years in Feb, but annual house price growth remained weak, survey data from the property market data website Rightmove showed. UK's annual average wage growth of 3.4% outstripped asking prices at the fastest rate since 2011, the survey found. Average asking prices rose 0.7% MoM in Feb, after a 0.40% rise in Jan. Prices rose for a second straight month in Feb. Compared to the same month a year ago, house prices were 0.2% in Feb, which was the weakest pace since 2009. (RTT)

Japan: Business mood sours, tough year seen ahead. Japanese business sentiment worsened in Feb to levels last seen in late 2016, the Reuters Tankan poll showed, in a sign companies took a hit from weakening demand both at home and abroad in the face of slowing global growth and trade friction. The monthly poll, which tracks the BOJ closely watched quarterly tankan survey, found manufacturers’ mood sliding for a fourth straight month and service-sector morale falling for the first time in four months. The worsening business sentiment underscores the risks Japan’s economy faces this year, including an intensifying US-China trade war and a planned nationwide sales tax hike in Oct. (Reuters)

Malaysia, China: Trade volume at record high of RM443bn. Total trade volume between Malaysia and China reached a record high of USD108.6bn (RM443bn) in 2018, with the number of Chinese visitors into Malaysia increasing 29% to 2.94m last year. Malaysia-China Business Council chairman Tan Kok Wai said overall relations between Malaysia and China remain on the right track despite the controversies regarding some local large scale projects in the country. “Today, under the circumstances of the ceaseless China-US trade war and the uncertainty of the global economic outlook, we must remain cautious yet optimistic and work diligently in a practical and realistic spirit,” he said. (StarBiMarkets

Berjaya Land: To venture into property development in Iceland. Berjaya Land (B-Land) is proposing to acquire a 100% stake in Geirsgata 11 EHF (GE11) and consequently settle the Iceland-based company's loan for a collective amount of USD13.99m (about RM57.54m) in its bid to venture into Iceland's property market. Its unit Berjaya Reykjavik Investment Ltd (BRIL) had entered into an agreement with Fiskitangi EHF (FEHF) and Utgerdarfelag Reykjavikur HF (URHF) for the two proposals. (The Edge)

Deleum: Bags gas lift valve contract from Petronas Carigali. Deleum has bagged a three-year contract to provide gas lift valves and insert strings equipment, accessories and services to Petronas Carigali SB. Its wholly-owned subsidiary Deleum Oilfield Services SB has received a letter of award from Petronas Carigali. The contract will commence on Jan 7 and has a 1-year extension option. The contract is expected to contribute positively towards the group's earnings and net assets per share for the duration of the contract. (The Edge)

DBE Gurney: Jointly operate trading with Thailand’s FFCL, distribution agency. DBE Gurney Resources is partnering Thailandbased Farmmesh Foods Co Ltd (FFCL) to jointly open and operate a trading and distribution agency in Malaysia. DBE Poultry SB has entered into a memorandum of understanding with FFCL, where both companies will be operating the trading and distribution channel in Malaysia through a JV company, with 70% ownership by DBE Poultry and 30% by FFCL. FFCL is involved in the retailing of meat products. (The Edge)

PetGas 4Q net profit down 35%, declares 22sen dividend. Petronas Gas (PetGas) net profit fell 34.7% to RM317.9m in the 4QFY18, from RM486.7m a year ago, due to share of losses from a joint venture company, Kimanis Power SB (KPSB). The losses arose due to de-recognition of deferred tax assets (DTA) amounting to RM124.3m (being 60% share of the group) in relation to certain tax benefits. (The Edge)

Batu Kawan: 1Q net profit up 9.6% on profitable investment holdings segment. Batu Kawan Bhd 1Q net profit rose 9.61% to RM136.67m or 34.19sen per share, from RM124.69m or 30.98sen per share a year ago, mainly attributable to its profitable investment holdings segment. Revenue for the 1QFY19 however fell 20.77% to RM4.22bn, from RM5.32bn. Its investment holdings segment recorded a substantial increase in net profit of RM98.12m, versus a loss of RM100.54m previously. (The Edge)

CCM Duopharma: 4Q net profit up 18%, proposes 4sen dividend. CCM Duopharma Biotech 4Q net profit rose 18.45% to RM14.37m from RM12.13m a year ago, due to higher revenue and changes in accounting policies arising from adoption of the MFRS 9. EPS for the quarter ended Dec 31, 2018 rose to 2.17sen from 1.86sen. Quarterly revenue was up 3.01% to RM115.63m, from RM112.25m previously. CCM Duopharma has declared a final dividend of 4sen. (The Edge)

Guan Chong: Declares special dividend as 4Q net profit almost doubles. Guan Chong’s net profit nearly doubled to RM63.02m or 13.19sen per share in the 4QFY18, up 92.6% from RM32.7m or 6.84sen per share last year, thanks to improved margins. Quarterly revenue grew 32.5% to RM651.29m from RM491.44m a year ago, on the back of higher sales volume of cocoa products. (The Edge)

Market Update

The FBM KLCI might continue to trend higher today as the regional equities kicked off the week with strong gains, propelled by a solid close on Wall Street on Friday. Energy stocks outperformed as oil prices touched their highest levels in months due to output cuts by key suppliers. Stocks across Asia Pacific got off to a robust start after broad declines on Friday, as trade war optimism on Wall Street in the interim fed through to markets in the region. The Stoxx Europe 600 rose by 0.2% to 369.78 on Monday, after the index finished at a four-month high on Friday, rising 3% for the week. France’s CAC 40 added 0.3% to 5,168.54 while the FTSE 100 was down 0.3% to 7,219.47, after finishing the week up 2.3%. Germany’s DAX 30 finished flat at 11,299.20.

Back home, the FBM KLCI index gained 3.91 points or 0.23% to 1,692.74 points on Monday. Trading volume decreased to 2.75bn worth RM1.65bn. Market breadth was positive with 446 gainers as compared to 378 losers. Hong Kong’s Hang Seng was up 1.7% with gains for all market segments, while in China the CSI 300 of major Shanghai- and Shenzhen-listed stocks was up 2.5%. Tokyo’s Topix jumped 1.5%. Trade talks would resume in Washington later on Monday, a day when markets in the US was shut for the Presidents Day national holiday.

Source: PublicInvest Research - 19 Feb 2019

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Technical Buy: MKLAND (8893)

Author: PublicInvest   |  Publish date: Mon, 18 Feb 2019, 10:19 AM

  • Target Price: RM0.215, RM0.235
  • Last closing price: RM0.195
  • Potential return: 10.2%, 20.5%
  • Support: RM0.180
  • Stop Loss: RM0.175

Possible for bottom fishing. MKLAND is recovering from its consolidation phase. RSI and MACD indicators currently signal reasonable entry level, with anticipation of continuous improvement in both momentum and trend in near term. Should resistance level of RM0.200 be broken, it may continue to lift price higher to subsequent resistance levels of RM0.215 and RM0.235.

However, failure to hold on to support level of RM0.180 may indicate weakness in the share price and hence, a cut-loss signal.

Source: PublicInvest Research - 18 Feb 2019

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Maxis Berhad - Hit By Higher Cost

Author: PublicInvest   |  Publish date: Mon, 18 Feb 2019, 10:18 AM

Maxis posted a 50% decline in 4QFY18 normalised net profit to RM259m. This was largely due to the recognition of RM250m additional cost arising from network improvement, home fibre re-pricing and the mobilization of Enterprise business growth. For full-year FY18, the results came in below expectations, accounting for only 91% of our and consensus estimates. We cut our FY19F earnings estimates by 11% as we expect cost to remain elevated given the change in Maxis’ strategy to become a converged player and in growing its home fibre and enterprise business. Also, we believe regulatory pressure on the pricing of fixed line broadband services could suggest limited growth in the pricing of wireless services as well. Given the downward revision in our earnings estimates, our DCF-based TP is reduced from RM5.18 to RM4.90. Maintain our Underperform rating on Maxis.

  • 4QFY18 revenue improved by 2.9% YoY to RM2,445m, mainly due to higher postpaid revenue as customer base increased by 10.2%. Device revenue has also increased by 16% to RM371m. However, these were partly offset by a 6.4% decline in prepaid revenue on lower subscriber base, which dropped by 5.8%. Meanwhile, home fibre connections have increased with QoQ net adds of 30k following the introduction of affordable prices and attractive bundles in 4QFY18.
  • Normalised 4QFY18 net profit down 50% YoY. Operating expenses increased by 26% YoY due to higher direct, network, staff and operating & maintenance costs. There was an additional cost of RM250m incurred in building the foundation for enterprise business growth, home fibre re-pricing following the introduction of Mandatory Standard on Access Pricing (MSAP) and network improvement to maintain customer experience. As a result, normalized 4QFY18 earnings dropped 50% to RM259m.
  • To focus on convergence. By 2023, Maxis inspires to become a converged player with strong presence in both fixed line and mobile business. To achieve this, Maxis will invest in fibre customer acquisition and expand the enterprise business while maintaining its leading position in the mobile segment through network improvement to enhance customer experience. However, in the immediate term, we expect profitability to decline due to higher investment cost. As such, we cut our earnings forecast for FY19F by 11% while projecting a 3- year earnings CAGR of 1.1%.

Source: PublicInvest Research - 18 Feb 2019

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Axiata Group - XL: Dragged By Higher Depreciation

Author: PublicInvest   |  Publish date: Mon, 18 Feb 2019, 10:18 AM

Axiata Group’s (Axiata) Indonesian unit, PT XL Axiata (XL), reported a flattish FY18 revenue of Rp23,001bn as an increase in postpaid subscriber base was offset by lower blended ARPU. It posted a headline FY18 net loss of Rp3,297bn compared to a profit of Rp375bn in FY17, mainly due to one-off accelerated depreciation charges on its 2G assets. Stripping out accelerated depreciation and other non-operating items, normalised FY18 net loss stood at Rp9bn versus a profit of Rp740bn in FY17. The results were below expectation, given consensus full-year FY18 forecast of Rp7bn. We maintain our earnings forecasts on XL Axiata, pending release of Axiata’s 4QFY18 results on 22nd February. Separately, Axiata has announced its divestment of Singapore associate and booking a gain of RM126.5m. We reiterate our Neutral rating on Axiata with an unchanged TP of RM3.85.

  • FY18 revenue was flat as the increase in data revenue of 13% YoY was offset by lower revenue from the non-data segment. Postpaid segment posted a strong 46% growth in subscriber base but the impact on overall revenue is minimal as prepaid subscribers constituted the bulk of total subscriber base (c.98%). Meanwhile, blended ARPU declined by 6% from Rp34,000 to Rp32,000, mainly due to competition in 1HFY18.
  • Accelerated depreciation charges. Over the last 12 months, there has been a significant decline in 2G traffic. Currently, 80% of XL’s customers are smartphone users of which 4G accounts for a majority of customers and >75% of traffic on XL’s networks. As such, XL has commenced the switching off of its 2G network, allowing it to re-farm spectrum for 4G usage instead. This resulted in an acceleration in depreciation of some 2G assets amounting to Rp4,190bn in 4QFY18.
  • Unsettled tax issue? With regards to news reports of the Nepali Supreme Court ordering Ncell and Axiata to pay Rs61bn (c.RM2.16bn) in capital gain taxes, Axiata has clarified that the group has not received any official orders from the court. It remains to be seen whether Axiata would eventually be required to pay the taxes but at this juncture, we reckon the issue remains unresolved.
  • Divestment of M1. Axiata has also announced its acceptance of the voluntary conditional general offer by Konnectivity Pte. Ltd, for the group’s entire stake in M1 Limited (M1) for a total cash consideration of about RM1.65bn (or at SGD2.06/share). The Group will effectively divest its 28.7% stake in M1 and exit its investment in Singapore with an estimated gain of RM126.5m. We are positive on this as it removes our earlier concern of a possible counter bid on M1 by Axiata. Also, should there be a need to pay the above-mentioned capital gain taxes, Axiata would have sufficient funding following this divestment. We estimate that the capital gain taxes could effectively amount to RM1.4-1.6bn. M1 contributed 9% of the group’s 9MFY18 profit. Our SOTP valuation would be reduced by 3.9% once M1’s divestment is completed.

Source: PublicInvest Research - 18 Feb 2019

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London Biscuits Berhad - Another Placement Exercise

Author: PublicInvest   |  Publish date: Mon, 18 Feb 2019, 10:16 AM

London Biscuits has proposed another private placement exercise following an earlier one completed in end-2018, but this time round raising about 15% of its enlarged share capital which will involve the issuance of 45.4m new shares. Proceeds from the exercise will be used primarily to pare down its borrowings. While dilutive, we are not overly troubled given the strong growth anticipated in its potato chip (and other) segment, coupled with the interest expense savings which will help mitigate. We are monitoring the situation closely nonetheless as the Group continues to be weighed by relatively high borrowing levels which cannot be addressed over the longer term in this manner. Our Trading Buy call is retained, with target price of RM0.71 also unchanged at this juncture. We expect LBB to continue focusing on ramping up utilization of its production capacity, as well as accessing new sales channels in order to drive sales and improve margin levels.

  • Size of placement. Assuming 46.6m warrants (expiring 2020) are exercised, the current placement will involve the issuance of up to 45.5m new shares or approximately 15% of the enlarged base of 303.1m shares based on the maximum scenario.
  • Proceeds of RM22.7m based on an illustrative issue price of 50sen per share will be utilized predominantly (RM18m) to pare down its borrowings which stand at a relatively large RM363.5m as at January 2019. Based on what’s been identified, annual interest savings of RM1.3m are anticipated (RM660,000 interest saved from repayment of RM10m in medium term notes, RM622,000 interest saved from partial repayment of bank overdraft and revolving credit). While seemingly inconsequential in absolute terms, it still does amount to about 9% of FY19 profit, which is fairly meaningful by some measure.
  • Business prospects. While the bread-and-butter cake segment continues to do brisk business, much of recent growth has emanated from the potato chip segment which is making significant headway in countries like Japan and South Korea, in addition to the existing markets it is currently operating in. The segment should be on track to doubling (to 30%) its contribution to Group revenue in two years. In fact, the Group is looking into increasing production output within the next 15 months to support its expansion efforts. Higher margins generated by this segment are also expected to contribute more significantly in improving the Group’s overall margins in the longer term.

Source: PublicInvest Research - 18 Feb 2019

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PublicInvest Research Headlines - 18 Feb 2019

Author: PublicInvest   |  Publish date: Mon, 18 Feb 2019, 10:15 AM


US: Fed policymakers see one rate hike, or none, as growth slows. When the Federal Reserve last month adopted a new “patient” approach to monetary policy, it gave no specific guidance about how long its policy pause would last, or how many more interest-rate increases, if any, were in the offing. This week, as disappointing US retail sales and industrial production data raised the prospect that the US economy will slow more quickly than expected, three Fed policymakers gave an answer: one rate hike, or perhaps none at all. It is not clear how widely those views are shared among all 17 Fed policymakers. (Reuters)

US: Industrial production unexpectedly drops 0.6% in Jan. Industrial production in the US unexpectedly decreased in the month of Jan, the Federal Reserve revealed in a report released on Friday. The Fed said industrial production fell by 0.6% in Jan after inching up by a downwardly revised 0.1% in Dec. Economists had expected production to tick up by 0.1% compared to the 0.3% increase originally reported for the previous month. The unexpected drop in industrial production came as manufacturing output slumped by 0.9% in Jan after climbing by 0.8% in Dec. (RTT)

US, China: President Trump receives update on China trade talks. President Donald Trump received an update on trade talks with China on Saturday after discussions in Beijing saw progress ahead of a March 1 deadline for reaching a deal. Trump was briefed in person by US Trade Representative Robert Lighthizer, Commerce Secretary Wilbur Ross, White House Chief of Staff Mick Mulvaney and trade expert Peter Navarro, said White House spokeswoman Sarah Sanders. Treasury Secretary Steven Mnuchin, economic adviser Larry Kudlow and other aides joined by phone. (Reuters)

EU: Eurozone Dec trade surplus below forecast. Eurozone's merchandise trade surplus for Dec came in below economists' expectations, as exports decreased, while imports were unchanged, figures from the statistical office Eurostat showed on Friday. The seasonally adjusted trade surplus fell to EUR15.6bn from EUR15.8bn in Nov. Economists had expected a surplus of EUR16.3bn. Exports decreased 0.1% MoM, while imports were unchanged. On a non seasonally adjusted basis, the trade surplus fell to EUR17bn from EUR24.5bn a year ago. Exports decreased 2.5% YoY, while imports grew 1.9%. Trade with the euro area countries shrunk 1.2% YoY in Dec. In the Jan to Dec period, the trade surplus decreased to EUR194.2bn from EUR234.9bn a year ago. Exports grew 3.7% YoY and imports rose 6.2%. Intra-euro area trade rose 5.2%. (RTT)

UK: Retail sales rebound strongly at start of year. UK retail sales rebounded strongly at the start of the year, rising at a faster-than expected pace, led by robust growth in clothing and footwear sales that were supported by price cuts, offering some respite amid the chaotic developments as Brexit looms. Retail sales including auto fuel rose 1% from Dec, when they decreased 0.7%, preliminary data from the Office for National Statistics showed on Friday. Economists had expected a 0.2% gain. On a YoY basis, retail sales including auto fuel rose 4.2% in Jan, which was the biggest increase since Dec 2016. Economists had expected sales growth to rise modestly to 3.4% from Dec's 3.1% increase. Clothing and footwear sales grew 5.5% YoY amid a price fall of 0.9%. (RTT)


TM (Trading Buy, TP: RM3.60): Intends to dispose of two office towers adjacent to its HQ. Telekom Malaysia (TM) intends to dispose of two office towers that are adjacent to its headquarters Menara TM on Jalan Pantai Baharu, Kuala Lumpur. According to a tender notice sighted, TM is inviting offers from interested parties to tender for 20-storey TM Annex 1 Tower and 33-storey TM Annex 2 Tower. Both properties are leasehold, with TM Annex 1 having 266,140 square feet (sq ft) of gross floor area, and 188,122 sq ft of net lettable area. TM Annex 2, meanwhile, has 412,875 sq ft of gross floor area, and 280,650 sq ft of net lettable area. The closing date for the submission of the completed tender documents is on March 29. Generally, the value of the buildings will depend on whether it will be tenanted, amidst an oversupply of office space in the property market. (The Edge)

Berjaya Land: Begins 2019 with The Tropika launch in Bukit Jalil. Having been rather quiet over the last two years, property developer Berjaya Land is expecting a busy 2019 with several development projects planned for launch this year. Slated for launch on Feb 23 right after the Chinese New Year festive period will be its latest condominium development in Bukit Jalil, Kuala Lumpur called The Tropika. With a total of 868 units spread across four towers, the 6.5-acre freehold project offers a golf course view and has a gross development value of slightly over RM700m. Only one tower offering 229 units will be launched first with unit sizes ranging from 732 sq ft to 1,318 sq ft. Price psf ranges from RM750 psf to RM820 psf. All units come with two car park bays. (The Edge)

Scomi: Scomi provides more details of loan defaults. Maybank has the right to dispose of 206.04 million shares of Scomi Energy Services (SESB) if its parent company Scomi Group fails to settle RM201.91m owed to the bank. Scomi Group said on Friday the other financiers other than Maybank were Pembangunan Leasing Corporation SB for a leasing facility and CIMB Bank for overdraft and foreign exchange contract limit facilities. (StarBiz)

Luxchem: Lower margins, higher expenses trim Luxchem's 4Q net profit. Luxchem Corp’s net profit for the 4QFY18 fell 8% to RM8.77m from RM9.49m in the previous year, on lower margins and higher expenses. Revenue rose 5% in the quarter to RM206.25m compared to RM197.23m a year ago. EPS fell to 1.02sen, from 1.13sen. Despite the lower net profit, the group announced an interim dividend of 1.25sen per share for the FY18 to be paid on a date to be fixed. This brings its FY18 payout to 4.44sen versus 4.86sen for FY17. According to the industrial chemical supplier, its lower gross profit margin and higher other operating expenses during the quarter had contributed to a lower profit after tax, though this was compensated slightly by lower other expenses. (The Edge)

APFT: Director Jeya Kumar quits three weeks after appointment. Less than a month after his appointment as executive director of APFT, Jeya Kumar Jegathison has resigned from the post, citing “personal reasons”. The change took effect yesterday. It did not provide any other details. Jeya Kumar was appointed to APFT’s board on Jan 23, 2019, along with two other independent and non executive directors, namely Chan Tiam Hin and Datuk Md Ismail Hamdan. Both Chan and Jeya Kumar's appointments were proposed by APFT’s shareholders via a Jan 11 requisition to the board to hold an EGM. The shareholders had also called for the removal of five existing directors. (The Edge)

Market Update

The FBM KLCI might start the week higher after US stocks on Friday posted their best daily gain this month, as investors kept faith that Beijing and Washington will still manage to avert an escalation in the trade war between the world’s two biggest economies. The benchmark S&P 500 gained 1.1%, the highest daily increase so far in February, contributing to a 2.5% rise for the week. The Dow Jones Industrial Average added 1.7% for the day and 3.1% for the week while the Nasdaq Composite lagged, rising 0.6%. After US and Chinese trade negotiators held the first substantial talks this week in several months, the two sides would meet again this week in Washington. In Europe the benchmark Stoxx 600 was up 1.4%. French and German equities rallied, with the CAC 40 climbing 1.8% and Xetra Dax 30 up 1.9%.

Back home, the FBM KLCI index lost 0.23 of a point or 0.01% on Friday. Trading volume decreased to 3.06bn worth RM1.99bn. Market breadth was negative with 354 gainers as compared to 475 losers. The CSI 300, an index of major stocks in Shenzhen and Shanghai, fell 1.9%. The Topix in Japan was off 0.6%. Seoul’s Kospi was down 1% while the Hang Seng was down 1.9%.

Source: PublicInvest Research - 18 Feb 2019

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