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PublicInvest Research

Author: PublicInvest   |   Latest post: Mon, 16 Jul 2018, 10:11 AM

 

PublicInvest Research Headlines - 2 May 2018

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Economy

US: US factory activity slows further, tariff concerns grow. US factory activity slowed for a second straight month in April, with manufacturers complaining about rising commodity prices in the wake of the Trump administration’s tariffs on steel and aluminium imports. The Institute for Supply Management (ISM) survey published on Tuesday also showed shortages of skilled workers, which together with the proposed import tariffs were causing bottlenecks in the supply chain. Rising raw material costs are the latest indication that inflation pressures are building and could attract the attention of Federal Reserve officials who began a two-day policy meeting on Tuesday. Data on Monday showed a jump in annual inflation rates in March. In addition, wages grew at their quickest pace in 11 years in the 1Q. (Reuters)

US: Fed likely to keep rates steady; investors bet on June hike. The US Federal Reserve is set to hold interest rates steady this week but will likely further encourage expectations that it will lift borrowing costs in June on the back of rising inflation and low unemployment. Investors have all but priced out the chance of a rate hike at the end of the Fed’s two-day policy meeting on Wednesday, particularly given its adherence in recent years to only raising rates at meetings that are followed by press conferences. The central bank is due to announce its decision at 2 pm EDT (1800 GMT) on Wednesday. Fed Chairman Jerome Powell is not scheduled to hold a press conference. (Reuters)

US: The US economy has hit a milestone. With the calendar’s turn from April to May, the US economic expansion has become the nation’s second-longest on record. That milestone was reached as the Federal Reserve prepared to begin a two-day meeting in Washington on Tuesday. After a slow-but-steady slog over the past eight years and 10 months, most parts of the economy still look resilient. The central bank has kept borrowing costs historically low since the US crawled out of a recession in mid-2009. It’s expected to leave interest rates on hold this week and plans to raise them only gradually. Meanwhile, President Donald Trump is betting on juicing growth through USD1.5trn in tax cuts and fresh government spending. Some sectors have the potential to keep growing even as other areas may be nearing their peak. (Bloomberg)

EU: Germany wants permanent US tariffs exemption, deeper trade ties. Germany has taken note of US President Donald Trump’s decision to postpone the imposition of steel and aluminium tariffs on the European Union and, in principle, still expects a permanent exemption, deputy government spokeswoman Martina Fietz said. “Neither the EU nor the US can have an interest in an escalation (in tensions) in trade relations,” “Rather, both the US and the EU would benefit from further deepening trade relations.” “It is particularly important that the EU has sought talks with the US and will continue to do so.” The White House said on Monday Trump had postponed the imposition of steel and aluminum tariffs on Canada, the EU and Mexico until June 1, and reached agreements for permanent exemptions for Argentina, Australia and Brazil. (Reuters)

EU: Proposes jump in crisis funding as US steps back, according to document. The European Union’s foreign policy chief will on Wednesday propose a 30% rise in its foreign aid budget for 2021-2027, according to a document seen by Reuters, as the bloc seeks to increase its influence while the US pulls back. From Mexico to Myanmar, the economically powerful bloc’s foreign aid and development budget is a large part of the “soft power” which supports its international diplomacy, especially as it lacks a unified military. But the EU, the world’s biggest aid donor, holds its money for grants and loans through a host of different funds, known as “external action financing instruments”, often making its response to global crises slow and confused. As the European Commission sets out its common budget proposal on Wednesday, EU foreign policy chief Federica Mogherini will also propose a single fund responsible for managing most of the EUR123bn (USD148bn) planned for the 2021-2027 period, an internal document shows. (Reuters)

China: Economy gives little sign of slowdown as PMIs hold up. China’s economy is giving little sign that a slowdown is approaching, with services strengthening and manufacturing remaining robust. The official manufacturing PMI stood at 51.4 in April versus the 51.3 estimate in a Bloomberg survey and 51.5 last month. The non manufacturing PMI, covering services and construction, rose to 54.8, beating estimates. In the face of persistent threats to the trade outlook from a dispute with the US and the impact of a credit clampdown, policy makers have expressed fears that the economy could slow more sharply than the cyclical moderation that’s already anticipated. That said, a cut in the amount of funds that lenders must park at the central bank has buoyed markets, and a mission to China by US trade officials in the coming days may ease tensions. (Bloomberg)

Malaysia: Business loan growth steady at 1.9% in March — BNM. Business loan growth remained steady at 1.9% in March, compared with 2% in Feb, said Bank Negara Malaysia (BNM). In particular, the growth of loans to small and medium enterprises increased to 5.8% from 5.4% in February. "Household loan growth was stable at 5.6%," the central bank said in its March monthly highlights. BNM had earlier reported that total loan growth in March rose 4.39% to RM1.6trn, from RM1.54trn a year earlier. Meanwhile, net financing growth moderated to 6.8% in March, from 7.4% in Feb. The growth of net outstanding issuances of corporate bonds moderated to 14.2% from 16.4%, while growth of outstanding loans of the banking system was sustained at 4.4%. (The Edge)

Markets

AAX (Neutral, TP: RM0.38), MAHB: MAHB sues AAX over RM35m in unpaid dues. Malaysia Airports Holdings (MAHB) is taking legal action against AirAsia X (AAX), claiming the airline owes it RM34.9m in outstanding airport charges, rent and late payment charges. MAHB said its wholly-owned subsidiary Malaysia Airports (Sepang) SB has on April 27 filed a writ of summons and statement of claim at the Shah Alam High Court on AAX. (The Edge)

Comments: We understand that AAX has remitted payments to Malaysia Airports Holdings (Sepang) Sdn Bhd on 2 February 2018, 1 March 2018, 1 April 2018 and, most recently, a sum of RM16.5m, being part of the RM35m claim by MAHB. AAX has lodged numerous official complaints on MAHB regarding dissatisfactory airport facilities and high charges in the past. Meanwhile, a reconciliation of reimbursement for losses incurred by AAX due to a fuel pipeline leak at klia2 in October 2016 is still on-going and unresolved. Pending more clarifications in the quarterly briefing due on 22 May, we maintain Neutral with an unchanged target price of RM0.38.

Westports: To buy Pulau Indah land for RM116.2m. Westports Holdings’ wholly-owned subsidiary, Westports Malaysia SB (WMSB), has proposed to acquire 154.2ha of leasehold land in Pulau Indah from the Selangor State Development Corp (PKNS) for RM116.2m. It said the purchase consideration will be satisfied entirely in cash which will be funded by internally generated funds and bank borrowings. “The proposed acquisition is for a terminal expansion as the current preliminary port design for Container Terminal 10 to 19 requires additional land acreage to accommodate new wharf and container yard space to facilitate the effective operations of the new container terminals,” said Westports. (StarBiz)

UMW, MBMR: Majority shareholders of Med-Bumikar approve UMW takeover. The majority of shareholders of Med-Bumikar Mara SB have voted in favour to sell its 50.07% stake in listed auto group MBM Resources (MBMR) to UMW Holdings. According to sources, Med-Bumikar’s shareholders who collectively hold 52% of the outstanding shares voted in favour of the proposed sale during its EGM on Monday. (The Edge)

Yinson: Enters novation agreement with JX Nippon, TH Heavy. Yinson Holdings has entered into a novation agreement with JX Nippon Oil & Gas Exploration (Malaysia) Ltd and TH Heavy Engineering (THHE) for the novation of the contract for provision of EPCIC and leasing of the Layang FPSO facilities dated Nov 27, 2014 between JX Nippon and THHE. The charter contract is a firm charter period of eight years with 10 extension periods of one year each. "The estimated aggregate value of the charter contract, assuming all extension options are exercised, is some USD860m (RM3.4bn)," Yinson said (The Edge)

Ajiya: Signs deal to form partnership with Asteel. Ajiya has entered into a subscription and shareholders agreement (SSA) with YKGI Holdings’ unit, Asteel Resources SB, for the purpose of forming a JV company, Asteel Ajiya SB. Ajiya said the proposed JV would be involved in the manufacturing and sale of safety glass, supply and installation of Ajiya Green Integrated Building System, as well as trading of metal door frame, window frame, metal ceiling and sunshade products in Sabah and Sarawak. “Under the SSA, Ajiya shall hold 40% equity in Asteel Ajiya while the remaining 60% will be held by Asteel Resources,” it added. (Bernama)

MISC: Takes delivery of final LNG carrier. MISC has taken delivery of Seri Cemara, the final of five new liquefied natural gas (LNG) carriers, from South Korea's Hyundai Heavy Industries Co Ltd. The vessel will be chartered to Petroliam Nasional (Petronas) for the next 15 years, upon delivery. The delivery of Seri Cemara brings the current number of MISC's LNG fleet to 29 vessels. (The Edge)

Censof: Bags RM73m contract from HRDF. Censof Holdings has bagged a contract worth RM73.3m to implement an integrated core and finance system for the Human Resources Development Fund (HRDF). Censof said the five-year contract took effect on April 25. "The project will have no effect on the issued and paid-up capital, substantial shareholders' shareholding, net asset per share and no material changes in gearing ratio of the company and its subsidiaries," said Censof. (Bernama)

Bintulu Port: Expects container volume to hit another record high in 2018. Bintulu Port Holdings expects to achieve another year of record container throughput for 2018 at 340,000 TEUs (20-foot equivalent units), up 10% from 2017. The port operator is also projecting up to 4% increase in operating revenue this year, driven by the anticipated growth in container volume handled. "For 2018, we have set a target of 320,000 TEUs (in container throughput), but we are optimistic we can hit 340,000 TEUs," its CEO Datuk Mohammad Medan Abdullah said. (The Edge)

Tomypak: Reports more than 10% deviation between audited and unaudited profit. Flexible food packaging producer Tomypak Holdings has reported a deviation of more than 10% between its audited and unaudited financial results for FYE Dec 31, 2017 (FY17). The group's net profit after tax stood at RM13.6m in the audited financial statement, about 43.1% higher than the RM9.5m announced in the unaudited results, said Tomypak. The variance was mainly due to additional tax benefits arising from an increase in reinvestment tax allowances at one of its subsidiary, which was underprovided during the release of the unaudited results. "The addition of these reinvestment tax benefits has resulted in an additional RM4.1m net tax benefit to Tomypak," the group added. (The Edge)

Ire-Tex Corp: External auditors cast going concern doubt on company. Ire-Tex Corp's external auditors have highlighted a material uncertainty in the group's financial statements that may cast significant doubt on its ability to continue as a going concern. Messrs UHY pointed to Ire-Tex's accounts for the FYE Dec 31, 2017 (FY17) when the company had incurred a net loss of RM16.3m. On top of that, the group's current liabilities as of FY17 exceeded its current assets by RM15.1m, which according to the external auditors, indicates the existence of a material uncertainty which may cast a significant doubt on the group's ability to continue as a going concern. (The Edge)

Chin Teck: 2Q net profit jumps, boosted by substantial sum of other income. Chin Teck Plantations' net profit more than doubled in the 2QFY18, mainly lifted by a net fair value gain of RM14.1m as a result of the divestment of available-for-sale of investment securities. The plantation group announced that its quarterly net profit jumped by 2.8 times to RM22.7m or 24.8 sen per share, from RM8.1m or 8.88 sen per share in the previous corresponding quarter. (The Edge)

Market Update

The FBM KLCI may open flat today after a mixed performance of the main global equity markets yesterday. There was no stopping the dollar’s ascent on Tuesday, with the currency turning positive for the year against a basket of peers, as participants looked past a soft report on US manufacturing and focused on interest rate differentials and central bank policy divergence. Ahead of the conclusion of the Federal Reserve’s May policy meeting on Wednesday, the dollar index pushed above the 92.12 level at which it ended 2017 and climbed to within a whisker of this year’s intraday peak of 92.64. The euro fell below US$1.20 to its lowest point since early January and sterling tested US$1.36, while the greenback also recorded strong gains against a number of emerging market currencies. The yield on the 10-year US Treasury note crept back towards 3 percent and the two-year yield topped 2.5 percent. Energy stocks were a drag on the main US equity indices, although the broader market mood improved during the session, despite some disappointing corporate earnings reports, as a more optimistic mood regarding global trade swept through Wall Street. Participants were keenly awaiting Apple’s results, due for release after the US close. Trading in Europe was limited by holidays in a number of countries. On Wall Street, the S&P 500 ended 0.3% higher, having fallen as low as 2,625.41 earlier in the day. The Dow Jones Industrial Average fell 0.3%, with Pfizer down more than 3% after its quarterly revenues missed forecasts, while the tech-heavy Nasdaq Composite rose 0.9%. In London, the FTSE 100 rose 0.2%, helped by sterling’s latest bout of weakness. Bourses in Paris and Frankfurt were shut for the May Day public holiday.

Back home on Monday, the FBM KLCI index gained 6.90 points or 0.37% to 1,870.34 points. Trading volume increased to 1.71bn worth RM1.84bn. Market breadth was negative with 401 gainers as compared to 411 losers. Japan's Nikkei eked out modest gains in holiday-thinned trade on Tuesday supported by buying in index heavy stocks such as Fast Retailing and Fanuc, though Sony tumbled after the company issued a profit warning.

Source: PublicInvest Research - 2 May 2018

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