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PublicInvest Research

Author: PublicInvest   |   Latest post: Fri, 30 Oct 2020, 10:22 AM

 

PublicInvest Research Headlines - 19 May 2020

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Economy

Global: IMF chief says ratings worries dampen interest in G20 debt relief. Some of the world’s poorest countries are reluctant to seek debt relief under a program backed by the Group of 20 major economies out of concern it could harm their credit ratings and future market access stressed the head of the IMF. Of 77 countries that are eligible for such debt relief, only 22 have requested forbearance thus far. The program was intended to ease the economic impact of the pandemic on the world’s poorest countries, many of which lack good health system and have high debt levels. However, the terms of the G20 debt relief also limit the amount of non-concessional debt that countries can raise during the suspension period, potentially curbing access to capital markets. (Reuters)

US: Powell says GDP could shrink more than 30%, but he doesn’t see another Depression. The US economy could shrink by upwards of 30% in the 2Q but will avoid a Depression-like economic plunge over the longer term stressed the Fed Chairman. In addition, he projects jobless numbers will look a lot like they did during the 1930s, when the rate peaked out at close to 25% but pointed the nature of the current distress coupled with the dynamism of the US and the strength of its financial system should pave the way for a significant rebound. Among the factors that are different this time round from the previous Depression era is that the Fed is being more of an activist while Congress has already passed close to USD3trn in rescue funds and is contemplating another round. Also, the cause of this downturn is not an asset bubble or another associated more fundamental reason but rather a self induced economic freeze brought on by efforts to combat the coronavirus. (CNBC)

EU: Eurozone unlikely to return to pre-crisis level before 2021, says ECB's Lane. The ECB Executive Board Philip Lane projects that the euro area economy will not return to pre-pandemic levels until 2021. The future depends much on how quickly the restrictions on economic activity can be eased and also how people adapt to living with the coronavirus. The ECB is continuously monitoring the situation and are ready to adjust all instruments if necessary. The central bank took all steps to make sure that the necessary monetary and financial conditions for the restoration of economic activity are in place, in line with the easing of the containment measures. (RTT)

EU: ECB’s Lagarde says QE to continue despite german court ruling. European Central Bank President Christine Lagarde said she’ll continue with the institution’s bond-buying programs despite Germany’s top court questioning the legality of one of them. “I am not at all worried, not about the program linked to the pandemic, and not about the previous program, under which the Eurosystem has been purchasing bonds since 2015,” she said in an interview with multiple European newspapers. “We remain undeterred in delivering on our price stability objective.” Germany’s constitutional court ruled this month that the 2015 asset purchase program, which has bought EUR2.7trn (USD3trn) of debt and is still running, might not be proportionate to the risk of adverse side effects and so might be illegal. (Bloomberg)

EU: Germany faces bleak economic outlook- Bundesbank. Bundesbank emphasized that Germany’s economy will suffer a severe contraction in the 2Q, despite an easing of the most crippling restrictions put in place to fight the coronavirus pandemic. With much of Europe emerging from the third month of lockdown, life is slowly returning to normal. Many economists, however, expect the recovery to be halting and timid, suggesting the region may struggle with the lingering impact of the pandemic well beyond this year. Despite the easing measures that have been introduced, social and economic life in Germany is still very far from what was previously considered normal. The available economic indicators paint a correspondingly bleak picture. The German economy shrunk by 2.2% QoQ in the 1Q2020, its steepest fall since 2009. Bundesbank projects that output would be “significantly lower” in the 2Q. (Reuters)

UK: Household finances remain under pressure in May. UK household finances remained under severe pressure in May, survey data from IHS Markit showed. The Household Finance Index, which measures households' overall perceptions of financial well-being, came in at 37.8 in May, up only slightly from April's eight-and-a-half year low of 34.9. Although the index rose from April, the figure remained indicative of a strong degree of pessimism towards the outlook for financial health. The concern for the household sector remains the labour market, which will be vital in determining the speed at which consumer spending can return once the economy emerges from the lockdown. (RTT)

China: Home prices increase in April. China's home prices increased in April suggesting that the property market started gradual recovery as businesses reopen after the spread of coronavirus subsides. Out of 70 cities, house prices increased in 50 compared to 38 cities in March. According to preliminary estimate, house prices in first-tier cities rose 0.2%. House prices decreased 0.3% in Beijing and remained flat in Shenzhen and Guangzhou. Meanwhile, prices gained 0.6% in Shanghai. The sales prices of newly built commercial housing in 31 second-tier cities rose by 0.5% MoM and that in 35 third-tier cities climbed 0.6%. Data showed that house prices fell 0.2% in Wuhan, the epic centre of the coronavirus outbreak. (RTT)

Japan: Tertiary activity declines for second straight month. Japan's tertiary industry activity declined for the second straight month in March. Tertiary industry activity decreased 4.2% MoM in March after easing 0.7% in February. Data showed that the broad ranging personal services dropped 6.4% in March, and broad ranging business services fell 2.1%. Among components, living and amusement-related services, transport and postal activities, retail sales, business-related services, wholesale trade, goods rental and leasing, real estate declined in March. Meanwhile, medical, health care and welfare, finance and insurance, electricity, gas, heat supply and water, and information and communications increased from the previous month. On a yearly basis, tertiary activity decreased 5.7% in March, sharper than the 1.1% fall logged in February. (RTT)

Indonesia: Trade balance swings to deficit. Indonesia’s trade balance swung to a deficit in April from a surplus in the previous month, amid a fall in exports and imports. Exports fell 7.02% YoY in April. Imports declined 18.58% annually in April. On a monthly basis, exports dropped 13.33% and imports decreased by 6.10% in April. Trade balance registered a deficit of USD0.34bn in April versus USD0.71bn surplus in March. (RTT)

Markets

Kossan: Wholly-owned subsidiary entered into an SPA with Improgen to acquire land. Kossan’s wholly-owned subsidiary has entered into a Sales and Purchase Agreement with Improgen SB (holding company owned by Kossan’s major shareholders) to acquire a piece of industrial land measuring 11,314sqm in Kapar. (Bursa Malaysia)

Comments: We deem the acquisition fair as the land’s market value is valued at RM7.3m but the transaction price is lower at RM6.6m. We note that Kossan’s subsidiary has been renting the plot of land from Improgen SB to serve as a hostel for its workers. We are neutral on the acquisition as the transaction is not expected to have any material financial impact on the Group. Maintain Outperform on Kossan.

LYC Healthcare: Partners with Biofresh to market hygiene, sanitisation services. LYC Healthcare is partnering with Biofresh Hygiene Services SB to market cleanliness, hygiene and sanitation services in Malaysia amid rising awareness of hygiene due to the Covid-19 pandemic. Through this agreement, LYC Medicare will be entitled to 30% of revenue generated in Malaysia from clients secured by the company, with the amount being exclusive of all applicable taxes. Thus, this agreement will have a positive impact on the company’s earnings and net asset per share for the FYE March 31, 2021 (FY21). (The Edge)

ARB: Signs partnership agreement with Megvii. ARB has inked a strategic business partnership with Beijing Kuangshi Technology Com (MegVii) to collaborate and explore business opportunities in the area of artificial intelligence (AI) facial recognition application and relevant algorithm technology in the internet of things (IOT) in Malaysia. (SunBiz)

Tan Chong: Unit appointed exclusive distributor of MG vehicles in Vietnam. Tan Chong Motor Holdings said its subsidiary in Vietnam has been appointed as the exclusive importer and distributor of completely-built-up (CBU) MG brand vehicles in that country. The appointment of TC Services Vietnam Co Ltd was made by SAIC Motor Corp Ltd, the largest automobile group in China. It said the five-year appointment will provide the group with an opportunity to expand its foothold in the automotive industry in Vietnam. (The Edge)

Sanichi, PNE, AT Systematization: Sign MoU with US-based firm to produce ventilators. Three Malaysian listed firms and a US-based company have joined forces to produce medical-grade mechanical air ventilators to take advantage of the worldwide shortage of the product. Sanichi Technology, AT Systematization and PNE PCB said that they have inked a MoU with Arzon Solar LLC (ARZ) to form a JV company for the purpose. They said they will hold shareholding of 30% each in the JV, while ARZ will have a 10% stake. (The Edge)

FGV: Focuses on 'waste-to-wealth' renewable energy projects. FGV Holdings is stepping up its renewable energy projects in a move to speed up its recovery strategy from the Covid-19 pandemic. Group CEO Datuk Haris Fadzilah Hassan said the “waste-to-wealth” initiative was important to FGV due to the abundant resource derived from its plantation and mill activities. The immediate projects that could be carried out is the power generation business through its biogas captures at its palm oil mills. (StarBiz)

PetDag: Bleeds RM29m in 1Q. Petronas Dagangan (PetDag) posted a net loss of RM29.4m in the 1QFY20 compared with a net profit of RM291.2m a year ago partly due to higher inventories written down, higher depreciation and amortisation and a higher impairment loss on trade and other receivables. PetDag declared an interim dividend of 5 sen per share for the quarter amounting to RM49.7m payable on June 17, 2020. (SunBiz)

Thong Guan: Expects new capacity to propel earnings after strong 1Q results. Thong Guan Industries posted a higher net profit in the 1QFY20 boosted by higher sales of stretch film, industrial bags & films and courier bags. It also benefitted from the weaker ringgit and the lower price of raw material. It registered a 36% jump in net profit to RM17.4m compared with RM12.8m made a year ago. (StarBiz)

Mi Technovation: 1Q net profit up 50% on higher sales. Mi Technovation’s net profit for the 1QFY20 grew 49.9% to RM10.3m, from RM6.9m a year earlier, on higher sales revenue. Quarterly revenue rose 19.5% to RM35.2m due to stronger demand from customers in the North East Asia region, resulting from growth in capital investment from certain outsource semiconductor assembly and test firms in the advanced/wafer level packaging segment. (The Edge)

Takaful Malaysia: 1Q profit rises on lower expense reserves. Syarikat Takaful Malaysia Keluarga’s net profit expanded to RM101.6m in the 1QFY20, from RM96.4m a year earlier. This is due to lower expense reserves, which in line with the lower productions from group medical products. However, revenue slid to RM913m from RM918m previously due mainly to lower sales from the family takaful business. (Bernama)

Hume Industries: Returns to profit in 3Q but suspends outlook guidance on pandemic impact. Hume Industries is back in the black in its 3Q, as it records higher revenue from lower rebates on cement selling prices. It recorded a net profit of RM1.8m for 3QFY20, compared with a net loss of RM24.2m in the corresponding quarter a year prior. Going forward, the group expects the unprecedented situation caused by the Covid-19 outbreak to have an adverse impact on its business. (The Edge)

Carimin Petroleum: Slips into the red in 3Q on lower project revenue due to cheaper oil prices, Covid-19. Carimin Petroleum slipped into the red for the 3QFY20 due to lower revenue from its projects amid the movement control order (MCO) period and the monsoon season. The group posted a quarterly loss of RM2.8m against a net profit of RM2.1m for 3QFY19. Carimin did not declare any dividend for 3QFY20. (The Edge)

Kronologi: Sees no more major impairments ahead. Kronologi Asia does not expect any further major impairments to be made for the current FY20. It posted a net loss of RM11.2m in the 1QFY20, from a net profit of RM3.7m a year ago, despite revenue jumping 60% to a record high of RM51.97 million from RM32.5 million. The weaker earnings was mainly due to an RM11.6m one-time, non-cash impairment to property plant and equipment (PPE) incurred during the quarter. (The Edge)

Market Update

The FBM KLCI might open higher today as US stocks booked sharp gains Monday, erasing May losses, on optimism that the American economy might be percolating again, while the medical community works toward a potential COVID-19 vaccine. Support was also tied to remarks by Federal Reserve Chairman Jerome Powell on Sunday night, striking a more upbeat tone on US growth prospects, while reiterating that the central bank still retained tools to limit the economic downturn. The Dow Jones Industrial Average surged 911.95 points, or 3.9%, to finish at 24,597.37, after briefly advancing 1,000 points. The S&P 500 rose 90.21 points, or 3.2%, to end at 2,953.91. The Nasdaq Composite added 220.27 points, or 2.4%, closing at 9,234.83. In Europe, the Stoxx Europe 600 index climbed 4.1%, its largest one-day gain since March 24.

Back home, the FBM KLCI finished up 6.72 points or 0.48% at 1,410.16 as trade volume across Bursa Malaysia rose to another record high in less than a week at 11.21bn securities. The regional markets also finished higher today with shares in Hong Kong leading the region. The Hang Seng added 0.58% while Japan's Nikkei 225 rose 0.48% and China's Shanghai Composite tacked on 0.24%.

Source: PublicInvest Research - 19 May 2020

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