PublicInvest Research

Author: PublicInvest   |   Latest post: Fri, 22 Nov 2019, 11:33 AM


PublicInvest Research Headlines - 25 Jan 2019

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US: Weekly jobless claims fall to lowest level since 1969. The number of Americans filing applications for unemployment benefits fell to more than a 49-year low last week, but the drop likely overstates the health of the labor market as claims for several states including California were estimated. Still, labor market conditions remain strong, which for now should help to temper fears of a sharp slowdown in economic growth. The economy is facing several headwinds, including a month-long partial shutdown of the federal government, which is starting to hurt both consumer and business confidence. Initial claims for state unemployment benefits dropped 13,000 to a seasonally adjusted 199,000 for the week ended Jan. 19, the lowest level since mid-Nov in 1969 when 197,000 applications were recorded, the Labor Department said on Thursday. Data for the prior week was revised lower to show 1,000 fewer applications received than previously reported. Economists polled by Reuters had forecast claims rising to 220,000 in the latest week. (Reuters)

US: Consumer comfort slumps to lowest since June amid shutdown. A measure of US consumer sentiment fell to the lowest in almost seven months and ratings of the economy deteriorated amid the longest government shutdown in the country’s history. The Bloomberg Consumer Comfort Index declined to 57.4 last week from 58.1 as a gauge of views on the buying climate slid to a 10-week low, according to a report Thursday. A measure of Americans’ ratings of their personal finances edged up. While comfort remains elevated after rising to a 17- year high in late Sept, the measure has been giving up gains as the impasse in Washington idles federal workers. With no sign of a conclusion soon for the shutdown, evidence is mounting that the closure will take a bigger toll on the economy. (Bloomberg)

US, China: 'Miles and miles' from trade deal - Ross. The US and China are “miles and miles” from resolving trade issues but there is a fair chance the two countries will get a deal, US Commerce Secretary Wilbur Ross said on Thursday. A 30-member Chinese delegation plans to come to Washington next week for a round of trade talks next week, he said, as the world’s two largest economies try to meet a March 1 deadline to resolve their trade disputes. Ross tried to tamp down expectations for the high-level talks. “There is a very large group coming. There’s been a lot of anticipatory work done but we’re miles and miles from getting a resolution and frankly that shouldn’t be too surprising,” Ross said. (Reuters)

EU: ECB holds rates steady, guidance unchanged. The ECB left its key interest rates and forward guidance unchanged on Thursday, in the first policy session since the end of its four-year long EUR2.6trn asset purchase programme in Dec. The Governing Council, led by Mario Draghi, left the key interest rates unchanged after the policy session in Frankfurt. The main refi rate is currently at a record low zero percent and the deposit rate at -0.4%. The marginal lending facility rate is at 0.25%. Eurozone interest rates were raised last in July 2011 by 25 basis points. "The Governing Council expects the key ECB interest rates to remain at their present levels at least through the summer of 2019, and in any case for as long as necessary to ensure the continued sustained convergence of inflation to levels that are below, but close to, 2% over the medium term," the bank said. (RTT)

EU: ECB's Draghi says economic risks tilt to downside. ECB President Mario Draghi acknowledged on Thursday that risks to euro zone growth had shifted to the downside due to possible fall-out from factors ranging from China’s slowdown to Brexit. The region’s economy is already suffering its biggest slowdown in half a decade, raising questions over whether the ECB will be able to increase interest rates for the first time in a decade later this year as its current guidance indicates. It left that guidance and interest rates unchanged at its meeting on Thursday but Draghi’s comment will fuel market speculation that the bank will end up delaying a tightening in policy or even move to cut borrowing costs. “The risks surrounding the euro area growth outlook have moved to the downside on account of the persistence of uncertainties,” Draghi said. “The near-term growth momentum is likely to be weaker than previously expected.” (Reuters)

China: PBOC sets up swap tool to aid bank capital via perpetual bonds. The People’s Bank of China said it is setting up a new facility to encourage banks to replenish capital by issuing perpetual bonds, in a further move aimed at securing financing for the flagging economy. The new tool, called Central Bank Bills Swap, works by giving primary dealers bills that can be used as high-quality collateral in exchange for perpetual bonds purchased from banks. The step coincides with the planned issuance on Friday of the first such instrument by a Chinese lender. The PBOC also announced it’ll include perpetual bonds sold by banks with a rating equal or higher than AA as eligible collateral for monetary policy operations, Medium-term Lending Facility, targeted MLF and Standing Lending Facility. (Bloomberg)

Japan: Tokyo inflation unexpectedly rises to highest since 2015. Inflation in Tokyo showed unexpected strength in Jan as higher electricity bills nudged up prices. Consumer prices excluding fresh food in Tokyo, a leading indicator for nationwide inflation figures, rose 1.1% from a year earlier, according to the ministry of internal affairs. That’s stronger than the median estimate of 0.9% from economists and the highest reading since figures were distorted by a sales-tax increase in 2014. The latest figures come just two days after the BOJ sharply lower cedits price forecast for the year starting April. With inflation far from BOJ’s target, most analysts predict no change in Japan’s monetary policy this year. (Bloomberg)


CIMB (Outperform, TP: RM6.50): Plans investment bank in the Philippines. CIMB Group Holdings said it plans to enter into the investment banking market in the Philippines, after its wholly-owned unit CIMB Group SB received the relevant approvals from the Securities and Exchange Commission of the Philippines to establish its investment banking business there. CIMB's unit will be operating its investment banking business in the Philippines via a 60% shareholding in CIMB Bancom Capital Corp; the remaining 40% stake in CIMB Bancom will be held by local partners — Bancom II Consultants Inc and PLP Group Holdings Inc. (The Edge) Comments: This is a positive development considering the healthy economic growth Philippines is seeing, essentially also cascading into capital market activities. With investment banking presence in 10 countries, amongst which include Malaysia, Indonesia, Thailand and Singapore, the expansion bodes well with ample room cross-border opportunities and/or collaborations. This also comes on the heels of the Group recently establishing its retail banking presence in the country late last year. We continue to like CIMB Group's long term growth prospects and affirm our Outperform call.

GENM (Underperform, TP: RM2.70): Gets leave to commence judicial review over MoF decision. The High Court here has granted Genting Malaysia (GENM) leave to commence judicial review proceedings against the ministry of finance's (MoF) decision to amend the 2014 tax incentive approval in Dec 2017. (The Edge) Comments : In Dec 2014, the MoF had granted tax incentive for the Genting Integrated Tourism Plan (GITP), which entitled GENM to claim for income tax exemption for qualified capital expenditure that it incurred for a period of 10 years. However, the MoF decided in 2017 to amend the approval given which effectively prolongs the utilisation period of the tax allowances “significantly”. Should GENM fail and the amended tax incentive prevails, GENM’s tax cost would increase and this could post further earnings risk to the group already saddled with several outstanding litigations. We expect this to be a drag to its share price and reiterate our Underperform call on GENM.

Muhibbah Engineering: Bags contracts worth RM165m from PNB's unit. Muhibbah Engineering (M) has bagged 2 contracts worth RM165m to supply noise barriers for installation along the Sungai Besi-Ulu Kelang Elevated Expressway (SUKE) and the Damansara Shah Alam Elevated Expressway (DASH). It has accepted the award of the contracts from Permodalan Nasional Bhd's (PNB) for a combined RM165m. Turnpike Synergy is a wholly-owned subsidiary of Projek Lintasan Kota Holdings SB, which in turn is wholly-owned by PNB. (The Edge)

Tropicana: Tycoon Danny Tan to inject land bank worth RM1.85bn into Tropicana. Tycoon Tan Sri Danny Tan Chee Sing, founder and major shareholder of Tropicana Corp with a 63.56% stake, is back at the helm of the property developer as executive vice chairman after a three-and-a-half-year hiatus. The appointments come as Chee Sing injects into the group, what is left of his privately owned land bank worth RM1.85bn, representing a 17.9% discount as compared to the indicative market value. The land bank amounting to 1,116.88 acres under 12 real estate holding companies are located in the Klang Valley and Johor, with the potential GDV of RM24.82bn. (The Edge)

MyEG: To appeal against daily penalty by MyCC. MyEG Services will appeal against the daily penalty of RM7,500 imposed on it by the Malaysia Competition Commission (MyCC) for abusing its market position in the provision and management of online foreign workers’ permit renewal. It said it would file an appeal to the Court of Appeal after the KL High Court upheld MyCC’s decision under Section 10(2)(d)(iii) of the Competition Act 2010 for abusing its dominant position. (StarBiz)

TMC Life: Higher patient load, cases pushes up 1Q net profit by 12%. TMC Life Sciences net profit rose 11.7% to RM7.07m for 1QFY19) from RM6.34m a year ago, on higher patient load, higher intensity cases handled and additional consultants recruited. This resulted in a higher EPS of 0.41sen compared with 0.36sen in 1QFY18. Quarterly revenue also grew 13% to RM47.16m from RM41.73m a year ago. On prospects, it will continue to adopt measures to maintain growth by introducing more services, while ramping up outreach and marketing efforts. (The Edge)

Syarikat Takaful: 4Q earnings jump 61%, annual profit hits record high. Syarikat Takaful Malaysia Keluarga net profit shot up 61% to RM90.57m in its 4QFY18 from RM56.3m a year ago, thanks to higher gross contributions from its family and general takaful businesses. EPS almost doubled to 10.99sen versus 5.55sen in 4QFY17, while revenue rose 35% to RM701.51m from RM517.74m. For the full year, the group’s net profit rose 43% to a record high of RM294.92m compared with RM206.7m a year ago. (The Edge)

Caring: 2Q net profit surges 34%, sees higher sales in 3Q. Caring Pharmacy Group announced a 34.3% YoY surge in net profit for the 2QFY19, on the back of higher margins and commendable sales at its new and existing outlets. Net profit was higher at RM5.74m or EPS of 2.64sen, against RM4.26m or 1.96sen a year ago. Revenue grew 12.8% to RM139.30m, from RM123.45m in 2QFY18, contributed by sales generated from its 10 new outlets, as well as higher sales from its existing pharmacies. (The Edge)

Auto (Neutral): Cars may get less excise duty. The International Trade and Industry Ministry (Miti) might be looking towards a reduction in excise duties for vehicles, which will, in turn, result in a reduction in car prices. While there may be less revenue for the government from a reduction in excise duties, this can be compensated by a larger sales volume. (StarBiz) Comments: Excise duty on motor vehicles currently stands at about 60% to 105%, and is levied on all products, whether imported or manufactured locally. However, some incentives are given to local manufactured parts as well as electric vehicles. We believe the news from the Ministry of International Trade and Industry (MITI) to reduce the excise duties is good for the automotive industry and may help to spur demand. While this is still under preliminary stages, we are positive on the news as this may allow auto players to lower vehicle prices, which augurs well for sales growth.

Market Update

The FBM KLCI might end the week with negative note as global stock markets struggled to establish a clear direction as uncertainty over the outlook for US-China trade talks was offset by strong gains for chipmakers following some encouraging trading updates from the sector. Shares in European semiconductor group STMicroelectronics jumped more than 10 percent after its results proved better than expected. Wall Street then picked up the baton, with the Philadelphia SE Semiconductor index hitting its highest level since the start of December, following some upside earnings surprises from the likes of Xilinx and Lam Research after Wednesday’s closing bell but the optimism was tempered by comments from Wilbur Ross, US commerce secretary, that Washington was “miles and miles” from resolving trade issues with Beijing — although he later clarified that there was “a fair chance” a deal would be reached. On Wall Street, the S&P 500 ended 0.1% higher at 2,636 — after earlier hitting 2,647 — while the Dow Jones Industrial Average slipped 0.1% and the Nasdaq Composite gained 0.7%. Across the Atlantic, the Stoxx 600 Europe index ended 0.2% higher. Meanwhile, the Xetra Dax in Frankfurt rose 0.5% but London’s FTSE 100 finished 0.4% lower.

Back home, the FBM KLCI index gained 5.45 points or 0.32% to 1,693.59 points on Thursday. Trading volume increased to 2.44bn worth RM2.12bn. Market breadth was positive with 458 gainers as compared to 375 losers. In China, the CSI 300 index of major Shanghai and Shenzhen stocks gained 0.6% after China approved a new technology-focused index in Shanghai. The Hang Seng index in Hong Kong rose 0.4%, as did the Topix index in Tokyo.

Source: PublicInvest Research - 25 Jan 2019

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