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PublicInvest Research

Author: PublicInvest   |   Latest post: Mon, 21 Oct 2019, 9:38 AM

 

PublicInvest Research Headlines - 26 Mar 2019

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Economy

US: Fed rate cut seen nearer as yield curve invert. The Federal Reserve’s stunning about-face on rate increases along with weak economic data has left a key part of the U.S. Treasury yield curve close to levels at which the U.S. central bank has in the past been prompted to cut rates. The Fed brought its three-year drive to tighten monetary policy to an abrupt end, abandoning projections for any interest rate hikes this year amid signs of an economic slowdown, and saying it would halt the steady decline of its balance sheet in Sept. Rather than boost investor confidence, however, “the Fed’s ongoing actions and messaging have left markets more pessimistic than ever about the U.S. economic outlook,” said Win Thin, global head of currency strategy at Brown Brothers Harriman. (Reuters)

US: Fed officials see pros and cons of buying more short-dated bills. Shortening the average maturity of the Federal Reserve’s bond holdings could improve policy flexibility but also carries risks, officials said. US central bankers have some time to go before they decide on what the average maturity of their asset portfolio will look like in the longer run. But they’re starting to publicly debate the arguments, with both Philadelphia Fed President Patrick Harker and Charles Evans of Chicago weighing in on Monday. The decision is going to matter. Economists at UBS in New York pointed out in a note that the Fed currently holds no Treasury bills, which are securities with maturities of one year or less. That implies purchases of around USD300bn if it opted to match the 15% of outstanding Treasuries that are bills, based on a USD2trn bond portfolio. (Bloomberg)

US: Fed’s Harker says he sees one rate hike ‘at most’ this year. The US central bank should only raise interest rates once this year “at most” given risks to the economic outlook including Britain’s departure from the European Union, said Federal Reserve Bank of Philadelphia President Patrick Harker. “The potential risks tilt very slightly to the downside, but I emphasize the word ‘slight.’ I still see the outlook as positive, and the economy continues to grow,” he told an audience in London. “My current view is that, at most, one rate hike this year, and one in 2020, is appropriate.” Fed officials last week lowered estimates for US growth this year with their median projection signaling no rate increases in 2019 and just one in 2020. (Bloomberg)

Euro: Bruised eurozone seen getting biggest fiscal boost in decade. The euro-area economy looks poised to get some lift from what once helped to push it into crisis: government spending. The bloc, at risk of splintering half a decade ago due to over-indebtedness, is now battling the headwinds including trade protectionism at a time when the European Central Bank has little room to lend a hand. With more and more reason to worry about the economy, a prop from additional public spending provides some relief. The boost isn’t a game changer, but it’s some good news for European Central Bank officials who are hoping the region will emerge from its current doldrums in the second half of the year. (Bloomberg)

China: Has a lot of financial opening up to do, says Central Bank. The openness of China’s financial markets to the rest of the world isn’t high, so there’s a lot of room for increased access, according to People’s Bank of China Governor Yi Gang. Yi said foreign financial services institutions should be treated the same as domestic ones in terms of shareholding proportions, scope of business and licenses. He said the central bank will focus on providing more hedging tools in 2019 to help investors manage risks. Officials made repeated pledges to open up more of the economy to foreign companies and ensure a level playing field with domestic firms. The government is also seeking to bring foreign expertise and capital into play at a time of slowing economic growth, high debt levels and concerns about long-term financial stability. (Bloomberg)

Korea: Is seen needing USD9bn extra budget to prop up economy. South Korean President Moon Jae-in must boost government spending by about USD9.3bn more than originally planned this year if he wants to meet his economic growth forecast. That’s the average estimate from a Bloomberg survey of 10 economists on the size of an extra budget needed for GDP to expand in line with the government’s projection of 2.6-2.7%. Estimates ranged from KRW5 to KRW15trn. The initial budget for this year is KRW469.6trn won, already an increase of more than 9% on the previous year. The International Monetary Fund threw its weight behind the calls earlier this month when it warned of headwinds buffeting the Korean economy and urged the government to deliver "substantial" new spending. Bank of Korea Governor Lee Ju yeol is also a supporter of a fiscal boost, saying in parliament that a package of about 10 trn won would have a positive impact on growth. (Bloomberg)

Markets

Scomi Energy: Bags contracts worth RM610m in Kuwait. Scomi Energy Services has bagged two contracts worth USD150m (RM610m) from the Kuwait Oil Company for the provision of mud products and mud engineering services for deep drilling and development drilling. The five-year contracts will not have any material effect on its net assets for the FY19. (The Edge)

Cuscapi: To acquire Singapore-based tech firm for RM7.6m. Cuscapi is acquiring Amplify Me Pte Ltd that will enable it to migrate its existing customers from an aging client or server platform to cloudbased technology platform in a relatively short timeframe. This proposed business transfer will allow the group to own a technology solution platform, upon which future product roadmap as well as business opportunities can be built and realized. (The Edge)

Permaju, OCR: To jointly develop RM1bn GDV project in Kota Kinabalu. Permaju Industries has partnered with OCR Group to complete a residential and commercial development with an estimated GDV of RM1bn in Kota Kinabalu. Permaju said its 70%- owned subsidiary Hardie Development SB has inked a memorandum of understanding with OCR’s wholly-owned unit O&C Construction SB to jointly develop the 44.28-hectare Princess Heights project in Menggatal district. (The Edge)

Fajarbaru: Forewarns of RM28.5m impairment on receivables. Fajarbaru Builder Group announced that it has estimated the impairment of trade receivables of RM20.37m and impairment of contract assets of RM8.15m for the FY19, as a result of the windingup order of one of its clients TYL Land & Development SB. The impairment is likely to wipe out a large bulk of Fajarbaru's earnings. (The Edge)

Bio Osmo: Shareholders told to reject Farouk's 'unfair, unreasonable' takeover bid. Bio Osmo shareholders have been told to reject the takeover bid launched by its largest shareholder, Datuk Seri Farouk Abdullah, which has been deemed "not fair and not reasonable" by independent adviser DWA Advisory SB. The offer price of 5sen is lower than the estimated valuation based on the sumof-parts valuation of 6sen to 7sen per share in Bio Osmo.(The Edge)

Sapura Resources: Posts RM1.86m net loss in 4Q. Sapura Resources posted a net loss of RM1.86m in its 4Q ended Jan 31, 2019. The 4Q loss, however, compares with a net profit of RM14.90m in the previous financial year’s 4QFY18, when there was a one-off reversal of an indemnity provision worth RM22m. (The edge)

George Kent: 4Q earnings fall 64.8% on lower contribution from engineering segment. George Kent (Malaysia) 4Qnet profit fell 64.81% to RM18.25m, from RM51.85m a year earlier, due to lower contribution from its engineering segment. Revenue for the 4QFY19 dropped 33.78% to RM114.50m, from RM172.92m previously. The engineering segment’s quarterly profit fell 47% to RM38.87m from RM73.98m, while revenue was down 43% to RM79.64m from RM139.64m. (The Edge)

Hai-O: Lower MLM and wholesales revenue drag 3Q net profit down 26%. Hai-O Enterprise 3Q net profit fell 25.92% to RM12.79m or 4.4sen per share, from RM17.27m or 5.95sen per share a year earlier, dragged by its multi-level marketing (MLM) and wholesale divisions. Revenue for the quarter ended Jan 31, 2019 fell 16.41% to RM86.16m from RM103.07m previously. (The Edge)

Market Update

The FBM KLCI might open with a negative bias today as US stocks closed mostly lower Monday after data showing weakness on the global economic front triggered heavy losses at the end of last week while investors continued to fret over the inversion of the yield curve. However, the Dow bucked the trend to rise as shares of Boeing Co. rallied after recent losses. Meanwhile, the markets showed little reaction to the end of Special Counsel Robert Mueller’s probe into Russian meddling in the 2016 presidential election. The S&P 500 index shed 2.35 points to 2,798.36 with technology and financials topping the losses. The Nasdaq Composite Index edged down 5.13 points to 7,637.54. The Dow Jones Industrial Average meanwhile, rose 14.51 points to 25,516.83. European equity markets were lower, but pared losses after Ifo data, with the Stoxx 600 Europe index down 0.4% after sliding 1.2% on Friday, the biggest single-day decline since Feb. 7. The FTSE 100 was down 0.42% while France's CAC 40 was off 0.18% and Germany's DAX was lower by 0.15%.

Back home, the FBM KLCI index lost 17.51 points or 1.05% to 1,649.15 points on Monday. Trading volume increased to 2.79bn worth RM1.74bn. Market breadth was negative with 191 gainers as compared to 684 losers. The regional markets finished sharply lower with shares in Japan leading the region. The Nikkei 225 was down 3.01% while Hong Kong's Hang Seng was off 2.03% and China's Shanghai Composite was lower by 1.97%.

Source: PublicInvest Research - 26 Mar 2019

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