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PublicInvest Research Headlines - 25 Oct 2018

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Economy

US: Manufacturers say tariffs pushing prices higher, says Fed. US factories have raised their prices because of tariffs, although inflation has appeared modest or moderate in most parts of the country, the Federal Reserve said in its latest report on the economy. The US central bank also said in its latest “Beige Book” report that the economy appeared to be growing modestly to moderately and that businesses across a number of industries had reported labor shortages. The report, a snapshot of the economy gleaned from discussions with business contacts in the Fed’s 12 districts between Sept and mid-Oct, detailed business worries about the Trump administration’s trade war with China and simmering tensions with other major trading partners. (Reuters)

US: New-home sales tumble to lowest in almost two years. US purchases of new homes fell more than estimated in Sept to the weakest pace since Dec 2016, adding to signs that a lack of affordability is crimping demand, according to government data Wednesday. The results fell below all forecasts in Bloomberg’s survey of economists and showed downward revisions for the prior three months, signaling that the market ended the quarter on a weak note. A gauge of homebuilder stocks erased gains and was down 1% as of 1 p.m. in New York, bringing its decline this year to 35%. (Bloomberg)

US: Prolonged market slump could bruise US economy, says Fed's Mester. A “prolonged” fall in US stock markets could eventually begin to weigh on the US economy, though there are no signs of pinched credit or a pending recession so far, Cleveland Federal Reserve President Loretta Mester said. The sharp, nearly month-long drop in major equities indexes has not on its own caused Mester to adjust her expectation to continue gradually raising interest rates, she said, adding that for now data is pointing to a “strong” US economy. (Reuters)

EU: Euro zone businesses hit the brakes as trade war stalls growth. Euro zone business growth slowed much faster than expected this month, dragged down by waning orders that put a big dent in confidence, adding to evidence the bloc's halcyon days are behind it for now, a survey showed. Oct's disappointing survey is likely to concern policymakers at the ECB, who are expected to end their bond-buying programme in less than three months, despite a slew of political and trade concerns. The economic slowdown comes amid an escalating trade war between the US and China, a spiraling debt dispute in Italy, deadlocked Brexit negotiations and the prospect of steadily tightening financial conditions. (Reuters)

UK: Mortgage approvals drop to six-month low, according to industry data. British banks approved the fewest mortgages for house purchase since March last month and demand to refinance home loans also fell following the BOE’s interest rate rise in Aug, industry data showed. The number of mortgages approved for house purchase dropped to a six-month low of 38,505 in Sept from 39,241 in Aug, down 6.7% on a year earlier, the seasonally adjusted figures from UK Finance showed. Britain’s housing market has slowed since the Brexit vote in June 2016. Most of the weakness has been in London and neighboring areas, which have also been hit by a rise in purchase taxes for property worth over GBP1m. (Reuters)

UK: Car production slumps in Sept. British car output fell by 16.8% last month, hit by new emissions regulations, model changes, trade tensions and uncertainty over diesel policy and Brexit, an industry body said. Production stood at 127,051 units following a 19% drop in domestic demand and a 16.2% slump in exports, the Society of Motor Manufacturers and Traders (SMMT) said. Stricter emissions rules known as the Worldwide Harmonised Light Vehicle Test Procedure (WLTP) became mandatory on Sept 1, forcing certain carmakers across Europe to halt deliveries of some models that had yet to be re-certified. (Reuters)

Malaysia: Economic growth to ease in Dec 2018-Feb 2019. Malaysia's economic growth is expected to ease from Dec 2018 to Feb 2019, says the Department of Statistics Malaysia. In the “Malaysian Economic Indicators: Leading, Coincident and Lagging Indexes August 2018” Report released today, Chief Statistician Datuk Seri Dr Mohd Uzir Mahidin said the annual change of the Leading Index (LI) decreased 0.9% in Aug 2018. The LI is compiled to provide a signal on the economy's direction for an average of four to six months ahead. However, he said the monthly change of the LI increased by 0.3% to 118.9 points, following a 0.1% increase in July 2018. (Bernama)

India: Is said to plan trade deal to boost exports to China. India is devising a plan to boost shipments of around 200 products to China and narrow the deficit with its biggest trading partner, a person with knowledge of the matter said. The plan includes seeking duty waiver on a raft of products under the Asia Pacific Trade Agreement, the person said, asking not to be identified as the talks are still on. New Delhi wants China to scrap levies on items including uncombed single cotton apart from castor oil, menthol, granite, diamonds and glass envelopes for picture tubes when negotiations for expansion come up in April 2019. (Bloomberg)

Markets

LB Aluminium: Buys into property firm. LB Aluminium said its 51%-owned subsidiary Citajaya Kuasa SB has subscribed for two million new shares, representing an 80% stake in Contras Build SB for a cash consideration of RM2m. The remaining 49% of Citajaya is held by Datuk Seri Gan Yu Chai. Meanwhile, the remaining 20% of Contras is held by Wan Shafie Abdul Rashid, Shaik Ahmad Sufian Shaik Kamal Farid and Nabeel Nokman. Following completion of the share subscription, Contras is now an 80%-owned subsidiary of Citajaya and a sub-subsidiary of the company. (The Edge)

CapitaLand: 3Q NPI down 13.86%, declares 1.9sen DPU. Asset enhancement works at Sungei Wang Plaza weighed on the net property income of CapitaLand Malaysia Mall Trust as income fell nearly 14% to RM51.74m in the third quarter ended Sept 30, from RM60.07m a year ago. Distribution per unit (DPU) for the quarter amounted to 1.9sen for a yield of 7.14% based on CMMT’s closing price of RM1.11. As its DPU is paid out on a half yearly basis, unitholders can expect to receive their 3QFY18 DPU, along with their DPU for the quarter ending Dec 31, 2018. (The Edge)

Hua Yang: 2Q net profit jumps 161% on higher property sales. Hua Yang has registered a 161% jump in net profit to RM1.9m for the 2QFY19 from RM728,000 a year ago, on higher property revenue. EPS amounted to 0.54sen from 0.21sen previously, while revenue spiked 46% to RM64.55m from RM44.33m a year ago. Its property segment posted higher revenue and pre-tax profit of 47% and 55% respectively YoY, driven by higher sales. U nbilled sales at the end of the 2Q, stood at RM258.34m. The group has undeveloped landbank of 466 acres across key regions, with GDV of RM5.3bn.(The Edge)

Reach Energy: Y-3 exploration well to lift reserves. Reach Energy said it has yielded “positive results” from the Yessen-3 (Y-3) exploration well in its Emir Oil Concession Block onshore Kazakhstan, which is expected to contribute to the company's reserves due for update early next year. The Y-3 well has now been safely and successfully completed as budgeted, and will now enter the next stages. The well penetrated the Mid-Triassic carbonate reservoirs, with a total depth (True Vertical Depth Subsea, TVDSS) of 3,615.6 metres. (The Edge)

Pantech: Reports weaker 2Q following suspension of carbon steel shipments to US. Pantech Group Holdings has attributed a 7.5% YoY drop in profit to RM10.87m for the 2QFY19 on suspension of carbon steel shipments to the US, and cautioned increasing trade protectionism could pose further challenges. Revenue declined 5.8% to RM148.06m, from RM157.10m in 2QFY18. The shipment suspension arose from a preliminary affirmative anti-circumvention determination on Malaysia, which is still pending. As a consequence, its manufacturing division recorded a contraction in revenue and segmental profit before tax. (The Edge)

Eupe Corp: 2Q net profit more than doubles to RM8m. Eupe Corp net profit more than doubled to RM8.02m in the 2QFY19 from RM3.86m a year ago. The group’s EPS ballooned to 6.27sen in 2QFY19 compared with EPS of 3.02sen in 2QFY18. Quarterly revenue grew 3.2% to RM97.51m from RM94.51m a year ago. Eupe attributed the better quarterly results to the improved performance across its divisions, including property development, property construction and chalet and golf management division. For the 6MFY19, net profit jumped nearly 149% to RM12.07m. (The Edge)

Market Update

The FBM KLCI might open lower today after a sell-off for US stocks accelerated into the close, leaving the S&P 500 negative for the year and on the verge of entering correction territory, as concerns about the outlook for the chipmaking sector deeply unsettled the market. The Philadelphia SE semiconductor index fell more than 6% to its lowest close since September 2017, with Texas Instruments’ shares falling sharply after its revenues and earnings forecast disappointed.

On Wall Street, the S&P 500 fell for a sixth successive session to end 3.1% lower at 2,656 — leaving it 0.7% down for the year, and 9.7% below September’s record high. The Nasdaq Composite index ended 4.1% lower, taking it more than 12% down from the intraday record high hit at the end of August. It was the worst day for the tech-heavy index since August 2011. The Dow Jones Industrial Average shed 2.4% and also fell into negative territory for 2018. In Europe, the pan regional Stoxx 600 ended 0.2% lower. The Xetra Dax in Frankfurt shed 0.7% but London’s FTSE 100 edged up 0.1%, helped to some degree with a steep drop for sterling.

Back home, the FBM KLCI index lost 7.56 points or 0.45% to 1,690.04 points on Wednesday. Trading volume increased to 2.35bn worth RM1.92bn. Market breadth was negative with 245 gainers as compared to 620 losers. The regional markets finished mixed with the Nikkei 225 gained 0.37% and the Shanghai Composite rose 0.33%. The Hang Seng lost 0.38%.

Source: PublicInvest Research - 25 Oct 2018

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