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PublicInvest Research Headlines - 12 Jun 2018

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Economy

Global: Lagarde sees darker clouds over world economy after G-7 tiff. IMF Managing Director Christine Lagarde said the risks to the global economy are rising as major industrial nations sharpen threats of a trade war. “The clouds on the horizon that we have signaled about six months ago are getting darker by the day -- and, I was going to say, by the weekend,” Lagarde said. Her remarks follow a chaotic two-day meeting of the Group of Seven in which President Donald Trump shocked fellow leaders with his disregard for US allies. After leaving the summit early, Trump tweeted he was pulling US support from a joint statement and he accused the host, Canadian Prime Minister Justin Trudeau, of being weak and dishonest. Other G-7 countries lobbied unsuccessfully at the summit for the US to reverse new tariffs on imported steel and aluminum imports. Trump turned the tables by challenging world leaders to eliminate all trade barriers, tariffs and subsidies and he threatened to stop trading with them entirely. Lagarde’s concerns were echoed by World Trade Organization Director General Roberto Azevedo, who said growing trade frictions could cause serious damage to the world economy. (Bloomberg)

US: Inflation data to show warming up without too much heat yet. American consumer prices accelerated in May and costs paid to producers picked up, signs of a steady pickup of inflation that’s consistent with the Federal Reserve’s gradual approach to raising interest rates, government figures are projected to show this week. While recent announcements of price increases at Starbucks Corp. and Jack in the Box Inc. have garnered some attention, inflation pressures have been concentrated in services rather than goods, including food from restaurants. The exception more recently is fuel costs, with prices at the gas pump reaching a more than three-year high in May. But prices of core goods, which exclude food and energy, have been restrained for years. (Bloomberg)

EU: French banks face increased capital demand as lending heats up. French banks will need more capital to support lending in a downturn. The so-called countercyclical capital buffer requirement was activated for the first time and raised to 0.25% for French exposures, the High Council for Financial Stability said on Monday. The regulator pointed to swelling private-sector debt at 130% of economic output among its reasons for stepping in to bolster banks’ capital cushions. Banks already have enough capital to meet the demand, according to a person familiar with the matter. (Bloomberg)

UK: Factory, construction data cast doubt over economy. UK manufacturing output fell the most in 5 ½ years in April and construction posted a smaller-than-expected gain, casting fresh doubt over the health of the economy. The pound fell. Factory production shrank 1.4%, the most since 2012, the Office for National Statistics said on Monday. Economists had expected an increase. Building output rose 0.5%, well short of the strong rebound expected after a snow-blighted March. There was also disappointing news on trade, as the deficit unexpectedly widened to a five-month high amid a sharp drop in exports to countries outside the EU. The figures may cause the Bank of England to question its assumption that the pronounced economic slowdown in the 1Q will prove temporary. (Bloomberg)

Japan: Core machinery orders rebound, signal capex recovery intact. Japan’s core machinery orders in April jumped the most since the start of 2016, reversing the prior month’s decline and raising some hopes for durable growth in capital expenditure seen as crucial for a recovery in the economy after a contraction in the 1Q. Core orders, a highly volatile data series regarded as an indicator of capital expenditure in the coming six to nine months, rose 10.1% and handily beat a 2.8% gain forecast in a Reuters poll of economists. They fell 3.9% in March. (Reuters)

Markets

Sapura Energy (Trading Buy, TP: RM1.11): Discovers ninth gas well offshore Sarawak. Sapura Energy said it has discovered its ninth gas exploration well in offshore Bintulu, Sarawak following the completion of its drilling campaign within Block SK408 in 2017. The group said the ninth well was discovered by its wholly-owned subsidiary, Sapura Exploration and Production (Sarawak) Inc, and its two partners, Sarawak Shell and Petronas Carigali SB. Codenamed Pepulut-1, Sapura Energy said the ninth well encountered high quality reservoir within the Block SK408 production sharing contract. The well's discovery comes after the group's recent announcement of its development plans for Gorek, Larak and Bakong fields as phase one in the Block SK408. (The Edge) Comments: This further discovery reinforces the value of the field and solidifies future earnings growth of its production assets. We remain optimistic of the Group's prospects, short-term weaknesses notwithstanding, and retain our Trading Buy call with an unchanged sum-of-parts derived TP of RM1.11. To recap, Sapura energy has a 40% stake in the field, scheduled to kick-off commercial production in 2022.

Daya Materials (Neutral, TP: Under Review): Aims restructuring plan submission in Aug. PN17 company Daya Materials is targeting to submit its regularisation plan to Bursa Malaysia Securities no later than the end of 3Q of this year, before the deadline of March 2019. Daya Materials CEO and executive vice-chairman Datuk Lim Thean Shiang said the group is in the midst of engaging with stakeholders and finalising the appointment of a principal adviser. “As far as the board is concerned, we have already sat and discussed in detail about this plan. What we want to be clear about is that everyone will have the same objective to bring this company back.” (SunBiz)

Metronic Global: Awarded RM5m in adjudication proceedings against Ahmad Zaki. Metronic Global‘s wholly-owned subsidiary Metronic Engineering SB has been awarded SAR4.73m (RM5m) in an adjudication proceeding against Ahmad Zaki Resources. Metronic Global said that the claim is in relation to disputes over non-payment for works done and costs incurred by Metronic Engineering for the Al Faisal University Campus Development Project in Riyadh, Saudi Arabia. Metronic Engineering had commenced the adjudication proceeding under Construction Industry Payment and Adjudication Act 2012 (CIPAA) against Ahmad Zaki. (The Edge)

Ahmad Zaki: Told to pay Metronic Global unit RM5m. Ahmad Zaki Resources has been ordered by an adjudicator to pay Metronic Global’s wholly owned subsidiary Metronic Engineering SB (MESB) a sum of SAR4.75m (RM5.05m) within 30 days in relation to a nonpayment dispute. Metronic Global said that the adjudicator, who was appointed on Jan 17, in his adjudication decision on June 7, determined for Ahmad Zaki to pay MESB within 30 days. (SunBiz)

IPO: Revenue Group expects to raise RM20.6m from IPO. Revenue Group, a cashless payment solutions provider, expects to raise RM20.61m from its IPO. MD and Group CEO, Eddie Ng Chee Siong said RM8.1m of the proceeds would be utilised as capital expenditure, while RM4.04m would be used to upgrade and enhance its revPAY platform and to recruit more information technology personnel. (StarBiz)

Market Update

The FBM KLCI might open with a positive bias today after global equities started the week on a moderately positive note as participants appeared to largely shrug aside the weekend’s acrimonious G7 meeting and looked instead to a heavy schedule of risk events taking place this week. The S&P 500 pared an early rise but still reached its highest closing level in three months, while prices for highly rated government bonds edged lower. The “risk on” mood was helped by reassuring comments from Italy’s new finance minister, which helped shares in Milan sharply outperform their European peers and push the yield on the country’s two-year sovereign debt down by as much as 64 basis points. On Wall Street, the S&P 500 rose 0.1% to 2,782, its highest finish since March 12, having earlier reached 2,790. The Dow Jones Industrial Average ended fractionally higher while the tech-heavy Nasdaq Composite added 0.2%. Italian stocks stood out in Europe as the FTSE MIB index jumped 3.4%, compared with a 0.7% rise for the region-wide Stoxx 600. The Xetra Dax in Frankfurt gained 0.6% and London’s FTSE 100 ended 0.7% higher.

Back home, the FBM KLCI index lost 2.52 points or 0.14% to 1,775.80 points on Monday. Trading volume decreased to 2.61bn worth RM2.40bn. Market breadth was negative with 404 gainers as compared to 488 losers. The regional markets finished mixed with the Nikkei 225 gained 0.48% and the Hang Seng rose 0.34%. The Shanghai Composite lost 0.47%.

Source: PublicInvest Research - 12 Jun 2018

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Labels: SAPNRG, DAYA, MTRONIC, AZRB

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