PublicInvest Research

Author: PublicInvest   |   Latest post: Mon, 23 Sep 2019, 9:36 AM


PublicInvest Research Headlines - 7 Sept 2018

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US: Factory orders pull back more than expected in July. New orders for US manufactured goods pulled back by more than expected in the month of July, according to a report released by the Commerce Department on Thursday. The Commerce Department said factory orders fell by 0.8% in July after climbed by a downwardly revised 0.6% in June. Economists had expected factory orders to drop by 0.6% compared to the 0.7% increase originally reported for the previous month. The bigger than expected decrease in factory orders reflected a sharp drop in orders for durable goods, which plunged by 1.7% in July after climbing by 0.9% in June. (RTT)

US: Service sector growth accelerates much more than expected. A report released by the Institute for Supply Management on Thursday showed a much bigger than expected acceleration in the pace of growth in US service sector activity in the month of August. The ISM said its non-manufacturing index jumped to 58.5 in August from 55.7 in July, with a reading above 50 indicating growth in the service sector. Economists had expected the index to inch up to 56.8. The bigger than expected increase by the headline index came as the business activity index spiked to 60.7 in August from 56.5 in July and the new orders index surged up to 60.4 from 57.0. (RTT)

US: Jobless claims unexpectedly dip to lowest level since Dec of 1969. A day ahead of the release the more closely watched monthly employment report, the Labor Department released a report on Thursday showing a modest decrease in first-time claims for US unemployment benefits in the week ended September 1st. The report said initial jobless claims dipped to 203,000, a decrease of 10,000 from the previous week's unrevised level of 213,000. Economists had expected jobless claims to inch up to 214,000. With the unexpected decrease, jobless claims dropped to their lowest level since hitting 202,000 in Dec of 1969. The less volatile four-week moving average also hit its lowest level since Dec of 1969, slipping by 2,750 to 209,500 from the previous week's unrevised average of 212,250. (RTT)

US: Private sector job growth slows more than expected in August. Private sector employment in the US rose by less than expected in the month of August, according to a report released by payroll processor ADP on Thursday. ADP said private sector employment climbed by 163,000 jobs in August after jumping by a revised 217,000 jobs in July. Economists had expected an increase of about 190,000 jobs compared to the spike of 219,000 jobs originally reported for the previous month. (RTT)

US: Labor productivity growth unrevised at 2.9% in 2Q. Reflecting upward revisions to both output and hours worked, the Labor Department released a report on Thursday showing the pace of growth in labor productivity in the 2Q was unrevised. The report said labor productivity increased by 2.9% in the 2Q, unrevised from the preliminary estimate but still reflecting a significant acceleration from the 0.3% uptick in the 1Q. Economists had expected productivity growth to be upwardly revised to 3.0%. (RTT)

EU: German factory orders fall unexpectedly on trade tensions. Germany's factory orders dropped unexpectedly on foreign demand in July amid trade disputes with the US. Data from Destatis, released Thursday, showed that new orders in manufacturing fell 0.9% in July from June, confounding expectations for an increase of 1.8%. Nonetheless, this was slower than the revised 3.9% decline seen in June. Domestic orders grew 2.4%, while foreign demand decreased 3.4% in July. New orders from the euro area were down 2.7% and that from other countries slid 4%. On a yearly basis, factory orders fell 0.9% after easing 0.8% in June. (RTT)

EU: Draghi seen pressing ahead with rate hike in 2019 despite risks. Mario Draghi will only just manage to raise interest rates before his terms ends in October 2019 amid continued risks from US tariffs and Italian politics, according to a Bloomberg survey of economists. With asset purchases about to conclude in Dec, most respondents predict the ECB president will increase the deposit rate by Sept next year, to minus 0.2% from minus 0.4%. That’s earlier than market pricing for a hike of similar magnitude in the 1Q2020, though the economists acknowledge the challenges ahead. (Bloomberg)

Japan: BOJ should slowly cut corporate bond buying, ex-BOJ Momma says. The Bank of Japan should gradually reduce its corporate bond purchases because the practice isn’t helping spur inflation but is raising the risk of reckless spending by companies, a former central bank executive director said. Ultra-low borrowing costs brought about by that and other BOJ measures may encourage corporate managers to make irrational investments, according to Kazuo Momma, whose time at the central bank included serving as head of the policy department. Investments with weak long-term prospects could “turn into non performing assets at once when recession comes,” said Momma, now executive economist at Mizuho Research Institute. It’s “a logical possibility” that such investments are increasing, making the economy more vulnerable in a future downturn, he said. (Bloomberg)


Media (Neutral): Government considering 10% cap on political parties' shares in media outlets, says report. The government is reportedly mulling over the possibility of limiting shares held by political parties in Malaysian mainstream media companies to 10%, in line with Pakatan Harapan's promise to reform and promote greater press freedom. The Malaysian Insight quoted sources as saying that the 10% cap would also apply to other shareholders including private companies, organisations, or individuals. A source with knowledge of the proposal told the news portal that the shareholding cap was suggested by Prime Minister Dr Mahathir Mohamad. Another source confirmed to the portal that the proposal has been raised in several of the coalition’s meetings but said he was unsure whether the proposal had been presented to the cabinet. (MalaysiaKini) Comments: We are not surprised by this proposal given the new government's outlined plans in its election manifesto to ensure press freedom (ie. independence), though it could be interesting to see how this is enforced. This may turn out positive from perceived new-found independence, which could then improve readership and/or viewerships. In addition, a new shareholder with related industry operations and/or experience could add value to the various media companies. Utusan Melayu is 49.8%-owned by UMNO, Media Prima is believed to be 19.1%-owned by UMNO thorugh interests in Gabungan Kesturi Sdn Bhd (11.1%) and Altima Inc (8.0%) while Star Media Group is 42.5%-owned by MCA. We maintain our Neutral view on the sector at this juncture.

TNB (Outperform, TP: RM17.81): Initiates National Connectivity Plan pilot project. Tenaga Nasional (TNB) will start a pilot project in Jasin, Melaka this month to assess the technical, safety and commercial viability aspects of using its electrical infrastructure for the government's National Connectivity Plan (NCP). It said the NCP will allow faster, cheaper and wider Internet accessibility. (The Edge) Comments: We understand that the pilot project will cover 1,100 out of 4,300 houses in three areas, namely Taman Merbau, Taman Maju and Felda Kemendor, in Jasin. The respective households will then gain access to high-speed broadband through TNB's fibre optics, which forms part of TNB’s existing telecommunication network. We view this news positively, as it will become another revenue contributor to the Group by embarking on a larger scale of National Connectivity Plan (NCP) if the pilot project successful. Pending results of this pilot project, we maintain our earnings forecast for now. The pilot project is expected to complete by the end of this year.

MMC: To jointly manage Penang’s cruise terminal with Royal Carribean Cruises. Penang Port SB (PPSB), an indirect wholly owned subsidiary of MMC Corp, has acquired a 60% stake in Swettenham Pier Cruise Terminal SB (SPCTSB) for RM6 cash. The remaining 40% of equity interest in SPCTSB is held by RCL Development Holdings (Penang) SB, an indirect wholly-owned unit of Royal Caribbean Cruises Ltd. MMC said SPCTSB was incorporated on July 17 to develop and operate the Swettenham Pier Cruise Terminal in Penang. Bernama reported that Penang Port and RCL have signed a joint venture agreement to redevelop the Swettenham Pier Cruise Terminal to accommodate larger ships. (The Edge)

iDimension: Sued for alleged breach of distributorship agreement. iDimension Consolidated said its wholly-owned unit has been sued by Online E-Club Management SB for alleged breach of distributorship agreement. The matter had been fixed for case management on Sept 18, the software developer said. iDimension said Online E-Club, an online software player, is seeking a declaration that the latter had lawfully terminated the distributorship agreement. iDemension does not foresee the legal action to have any material financial and operational impact on the group. (The Edge)

Public Bank: To fully redeem RM1b subordinated notes early. Public Bank announced that it will fully redeem its RM1bn subordinated notes due Sept 25, 2023 on Sept 25 this year. “Public Bank wishes to announce that notice of early redemption has been given to the noteholders that Public Bank will fully redeem the RM1bn 4.80% subordinated notes together with accrued interest on Sept 25, 2018,” the bank said. The notes were issued on Sept 35, 2013 at a coupon rate of 4.80% per annum. (SunBiz)

Eduspec: To raise up to RM6.9m via private placement. Eduspec Holdings has proposed to raise up to RM6.92m via private placement to third party investors to be identified later. The proceeds raised will be used for working capital and to repay bank borrowings. As of Aug 24, Eduspec's total bank borrowings stood at RM31.98m. Eduspec said the proposed private placement will involve the issuance of up to 138.45m new shares, representing not more than 10% of its issued shares. (The Edge)

TFP Solutions: Proposes RM17.5m capital reduction to offset losses. Loss-making TFP Solutions has proposed to undertake a reduction of its issued share capital, which will give rise to a credit of RM17.5m to reduce the accumulated losses of the company and enhance its credibility with customers, suppliers and investors. As at Dec 31, 2017, TFP’s accumulated losses stood at RM16.04m. The ACE Market-listed business solution provider said as at Sept 5, its issued share capital was RM20.51m comprising 205.06m shares including 1.28m TFP shares held as treasury shares. In addition, it has 97.65m outstanding five-year warrants expiring on Feb 16, 2019, which can be exercised into 97.65m new TFP shares at an exercise price of 10 sen each. (The Edge)

Alam Maritim: Completes debt restructuring, sees improved financial position. Loss-making Alam Maritim Resources said it has completed its debt restructuring exercise, after it and its lenders have agreed to vary the terms of and restructure the existing facilities. This follows the inking of bilateral agreements between the group and its lenders on Aug 30. "This will improve the group's financial position going forward to weather the market slowdown and remain competitive, as well as sustain its business in the offshore oil and gas industry," it said. Under the group's proposed restructuring scheme, Alam Maritim's debt has been restructured to a repayment term ranging from a one-year to a seven-year tenure facility. (The Edge)

Market Update

Technology stocks were hit again overnight, sending the Nasdaq Composite 0.9% lower on the day. Chipmakers led declines with some falling as much as 10% while industry bellwethers Amazon and Apple slipped about 2% each. With US’s relationship with China and Canada remaining tense, President Trump is reportedly training his sights on Japan. To add to the ‘gloom’, private companies in the US only added 163,00 jobs last month, falling well short of expectations of 190,000. The S&P 500 was down 0.4% though the Dow Jones Industrial Average managed to eke out a 0.1% gain. European bourses pulled back further amid ongoing trade-related concerns, while the unfolding selloffs in emerging markets are also weighing. Brexit-related concerns remain in the background, with comments from the German government saying that it is ready for all scenarios, including a no deal. UK’s FTSE 100 and Germany’s DAX led major markets lower with declines of 0.9% and 0.7% while France’s CAC 40 slipped 0.4%. Asian stock markets closed broadly lower overnight, with China (and soon, Japan) on edge owing to trade-related disputes with the US. Additionally, the Nikkei 225 also fell 0.4% as investors worried about near-term tourism activity following a major earthquake that hit the northern island of Hokkaido. Elsewhere, the Hang Seng Index fell 1.0% while the Shanghai Composite Index lost its early modest gains to close down 0.5%. Fortunes were mixed near home, with the FBM KLCI gaining 0.2% and the Straits Times Index slipping 0.3%. The Jakarta Composite Index rocketed 1.6% higher, seeing some relief following the last few difficult days.

Loss-making TFP Solutions has proposed to undertake a reduction of its issued share capital to reduce its accumulated losses and enhance its credibility with customers, suppliers and investors. Tenaga Nasional will start a pilot project in Jasin, Melaka, this month to assess the technical, safety and commercial viability aspects of using its electrical infrastructure for the government's National Connectivity Plan.

Source: PublicInvest Research - 7 Sept 2018

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