PublicInvest Research

Author: PublicInvest   |   Latest post: Thu, 12 Dec 2019, 9:19 AM


PublicInvest Research Headlines - 29 Nov 2018

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Global: Economy may be slowing more than expected, Lagarde says. Global economic growth may be slowing more than forecast only a month ago, underscoring the urgency for countries to pull back from a damaging trade war, the IMF warned. The IMF downgraded its forecast for world growth last month, and recent data suggest the outlook has gotten worse since then, the fund said Wednesday in report ahead of the Group of 20 leaders’ summit this week in Buenos Aires. Financial conditions have tightened, especially in emerging markets, while trade tensions have increased, said IMF. Since the IMF’s latest World Economic Update on Oct 9, global stocks have slumped on concerns that rising interest rates and the US-China trade war could undermine growth. (Bloomberg)

US: Economic growth unrevised at 3.5% in 3Q. Economic growth in the US was unrevised in the 3Q, according to the second reading released by the Commerce Department on Wednesday. The report said real GDP jumped by 3.5% in the 3Q, unrevised from the initial estimate and in line with economist estimates. Upward revisions to non residential fixed investment and private inventory investment were offset by downward revisions to consumer spending and state and local government spending. The Commerce Department said consumer spending surged up by 3.6% compared to the previously reported 4.0% spike. The downwardly revised consumer spending growth reflects a slowdown from the 3.8% jump in the 2Q. Overall GDP growth also slowed from the 4.2% increase in the 2Q, reflecting the slowdown in consumer spending growth as well as a downturn in exports and a deceleration in non-residential fixed investment. (RTT)

US: New home sales plunge to lowest level in well over two years. New home sales in the US showed a substantial decrease from an upwardly revised level in the month of Oct, according to a report released by the Commerce Department on Wednesday. The Commerce Department said new home sales plummeted by 8.9% to an annual rate of 533,000 in Oct from an upwardly revised rate of 597,000 in Sept. Economists had expected new home sales to rise to a rate of 575,000 from the 553,000 originally reported for the previous month. With the steep drop, new home sales tumbled to their lowest level since hitting an annual rate of 538,000 in March of 2016. (RTT)

EU: Eurozone M3 money supply growth at 3-month high. Eurozone broad money M3 annual growth unexpectedly accelerated to a three month high in Oct, while the increase in private sector credit was unchanged, figures from the European Central Bank showed on Wednesday. Monetary aggregate M3 grew 3.9% YoY after a 3.6% increase in Sept, revised from 3.5%. Economists had forecast 3.5% increase. The latest growth was the highest since July, when the gain was 4%. Credit to the private sector rose 3% YoY, same as in the previous month. The narrower measure, M1, which comprises currency in circulation and overnight deposits, grew 6.8% YoY, the same pace as in the previous month. Annual growth in the loans to households was unchanged at 3.2% in Oct. (RTT)

EU: ECB is said to see no need for new long-term loans in Dec. The ECB is unlikely to announce new long-term bank loans when it sets monetary policy next month, and is still on track to confirm the end of net asset purchases, according to euro-area officials familiar with the matter. Much of the discussion in the Governing Council is expected to be on how to reinvest existing debt when it matures, the people said. They asked not to be identified because such internal talks are confidential. An ECB spokesman declined to comment. A spate of weak economic data and pressure on Italy’s financial markets have sparked speculation over the health of the euro area, and whether the ECB should respond. (Bloomberg)

EU: German consumer confidence set to weaken slightly in Dec. Germany's consumer confidence is set to slightly weaken at the end of the year as high inflation rates and global economic uncertainty weigh on households' sentiment, survey results from the GfK showed on Wednesday. The forward-looking consumer confidence indicator is set to drop to 10.4 from 10.6 in Nov, the Nuremberg-based GfK said in its latest report. Economists had forecast a reading of 10.5. The GfK confirmed its forecast that real private consumer spending will increase by around 1.5% this year. For 2017, the group had at least 1.5% growth, while the official figure was around 1.9%. (RTT)

UK: GDP would suffer 10.7% hit in worst case no-deal Brexit. The UK will suffer a major economic hit if Parliament rejects Theresa May’s Brexit deal and the country crashes out of the European Union with no new trade arrangements in place, according to official analysis. A government report on Wednesday said GDP will be as much as 10.7% lower over 15 years if there’s no orderly exit and the supply of workers from the bloc dries up. The UK will be poorer under all exit options modeled in the study. While the new analysis paints a dire picture of the worst- case scenario, it does not provide a clear picture of the economic impact of the deal May finalized with the EU last week. (Bloomberg)

China: Xi highlights economic crossroads before Trump talks. Chinese President Xi Jinping said the global economy is at a turning point as he prepares for a critical meeting with Donald Trump this weekend. Addressing the Spanish Senate Wednesday, Xi said the world has to decide whether to continue working to support the global trading system. Failure to do so will lead to new barriers emerging between nations. "We’re at a crossroads, in economic terms, where we’ll either continue with economic globalization and free trade or resort to unilateralism and protectionism," Xi said. "The coordination and unity of the whole international community are needed to forge more consensus, to contribute more positive energy to help this world develop in the right direction.” (Bloomberg)


Sapura Energy (Trading Buy, TP: RM0.81): Selected for Saudi Aramco's long-term agreement programme. Sapura Energy (Sapura) marked a significant milestone in its growth strategy when its wholly-owned subsidiaries, Sapura Fabrication SB and Sapura Saudi Arabia, were selected to join Saudi Aramco’s Long-Term Agreement (LTA) programme. The LTA programme covers engineering, procurement, fabrication, transportation and installation (EPCI) contracts to support Saudi Aramco’s offshore projects. The LTA programme will be for a period of six years with options for extension. (Bursa) Comments : We are encouraged by this development as it will extend Sapura's jobs bid portfolio and clients' database besides strengthening its Middle-East presence. More importantly, the LTA status enables Sapura to participate in the construction of a large number of offshore oil and gas platforms, pipeline, power cables, and related facilities required under the current master plan for Saudi Aramco's fields. We understand that the Saudi Aramco's gas programmes will attract investment worth USD150bn over the next decade as it aims to double it gas production up to 23Bcfd from 14Bcfd currently. We maintain Trading Buy call for Sapura.

Bermaz Auto (Outperform, TP: RM2.57): Scraps planned unit listing on Philippine Stock Exchange. Mazda vehicles distributor Bermaz Auto has scrapped its plans to list its subsidiary, Bermaz Auto Philippines Inc (BAP), on the main board of the Philippine Stock Exchange. It said the decision was made after considering the current challenging automotive market conditions in the Philippines. (The Edge) Comments : After almost two years delayed, we believe the proposed listing of its 60.4%-stake in BAP was scrapped due to slower consumer sentiment in the Philippines’ operations subsequent to the imposition of higher excise tax by the Government since early of the year. The potential IPO proceeds were meant to be utilised on the construction of warehouse, body paint facility and Mazda showrooms in Philippines. Nevertheless, we had not taken into account the proposed listing into our current earnings forecasts. Hence, we make no changes to our assumptions. BAuto is currently trading at 11x PER FY20F and offers attractive dividend yield of 6%. We maintain our Outperform call on BAuto, with unchanged target price

IHH (Outperform, TP: RM6.96): Khazanah to divest 16% of IHH to Mitsui for RM8.42bn. Khazanah Nasional (Khazanah) is divesting a 16% stake or 1.40bn shares in IHH Healthcare (IHH) to Mitsui & Co., Ltd for RM8.42bn or RM6 a share. Khazanah said with the divestment, its shareholding in IHH will drop to 26.05%. It explained that this is based on the enlarged share capital of IHH after the completion of the acquisition of 30% additional equity interest in Acibadem Saglik Yatirimlari Holding A.S by IHH. IHH announced the Acibadem acquisition on Oct 8 this year. Khazanah said the divestment forms an important part of the restructuring of its portfolio, and the proceeds raised will be utilised for new investments and capital requirements. (The Edge)

FGV: In recovery mode, says its chairman. FGV Holdings, which undertook its biggest impairment from the 2014 acquisition of London-listed Asian Plantation Ltd (APL) in 3QFY18 and embarked on legal action against 14 former directors recently, has moved into recovery mode, its chairman and interim chief executive officer (CEO) Datuk Wira Azhar Abdul Hamid said. Likening the loss-making plantation giant's conditions to a patient undergoing a heart bypass, Azhar said it has "cleared the blockages" and is now "closing up the stitches". "Hopefully, the 'patient' can recover and run around in good health soon," he told a news conference to announce the group's financial results for 3QFY18. (The Edge)

Prestariang: Education platform plans with Alibaba, Conversant scrapped. Prestariang has scrapped plans to create an integrated education platform (IEP) with Alibaba Cloud, the cloud computing arm of China's Alibaba Group, and Singapore-based Conversant Solutions Pte Ltd. On Jan 12 last year, the three companies had entered into a MoU to form a strategic joint collaboration to create the IEP to drive innovation ecosystem for the education sector including education-related activities and services in Malaysia. Prestariang said the MoU has since lapsed, but it will continue to explore mutually beneficial business relationship with the parties in the education market. (The Edge)

Aeon: 3Q profit up 15% on higher revenue, better merchandise assortment. Aeon Co (M) posted a 15% rise in net profit to RM13.85m for 3QFY18 against RM12.08m in the same period last year, owing to higher revenue on the back of better merchandise assortment. Revenue grew 10.75% to RM1.06bn, versus RM961.44m a year ago. Aeon Co said revenue for its retail business registered a 12% improvement to RM895.7m, and its property management services a 5% increase to RM169m, the improvements mainly on the back of new shopping malls that were opened in Sept 2017 and April 2018 respectively. (The Edge)

Hengyuan: Slips into red due to refinery’s scheduled upgrade. Hengyuan Refining Company, whose share price tumbled almost 70% year to date, slipped into a net loss of RM122.49m for 3QFY18 as production volume was affected by a shutdown of its refinery facilities due to a scheduled upgrade dubbed Major Turnaround 2018 (MTA 2018). It posted a net profit of RM361.78m a year ago. The group’s revenue fell by 30% to RM2.07bn for 3QFY18 from RM2.96bn last year, as its refinery recorded reduced sales volume of 5.9m barrels from 10.9m barrels in the same quarter last year. (The Edge)

Muhibbah: Concession division boosts 3Q profit by 35%. The concession division of Muhibbah Engineering (M) helped boost its net profit by 35% to RM37.74m in 3QFY18, against RM27.95m last year. Revenue spiked 49.64% to RM557.33m, from RM372.45m a year ago. For 9MFY18, net profit rose 12.43% to RM106.92m, while revenue grew 3.35% to RM1.12bn. Muhibbah Engineering said improvement in earnings was mainly contributed by its concession division and that the group would continue to pursue infrastructure and marine projects in both overseas and domestic markets. (The Edge)

Mah Sing: Partners with Lazada to sell houses online for first time in Southeast Asia. Seeking an edge over other property developers in the country, Mah Sing Group has joined forces with e commerce platform Lazada Malaysia to offer its products online. The partners said the upcoming Lazada 12.12 Grand Year End Sale would mark the first time properties were being sold on an e commerce platform in Southeast Asia. Mah Sing Group CEO Datuk Ho Hon Sang said the developer aimed to be as innovative as possible in its business and wanted to reinvent the way consumers shopped for homes. (The Edge)

Market Update

The FBM KLCI might open with positive note after Wall Street jumped higher after the Federal Reserve chairman said US monetary policy was not on a “preset” path and that interest rates were close to the “neutral” level where they neither stimulate nor hinder economic growth. After what was viewed as dovish remarks by Jay Powell, the S&P 500 stock index ended the day 2.3% higher. Meanwhile, the Dow Jones Industrial Average rose 2.5% while the Nasdaq Composite gained almost 3%. Across the Atlantic, Europe’s Stoxx 600 closed flat while London’s FTSE 100 ended 0.2% down. In Frankfurt, the Xetra Dax closed the session 0.1% lower.

Back home, the FBM KLCI index gained 1.58 points or 0.09% to 1,686.55 points on Wednesday. Trading volume decreased to 1.67bn worth RM2.11bn. Market breadth was negative with 401 gainers as compared to 405 losers. The regional markets closed sharply higher with shares in Hong Kong leading the region. The Hang Seng was up 1.33%.

Source: PublicInvest Research - 29 Nov 2018

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