PublicInvest Research

Author: PublicInvest   |   Latest post: Wed, 21 Aug 2019, 10:13 AM


PublicInvest Research Headlines - 15 Jul 2019

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US: Producer prices show unexpected uptick in June. The Labor Department released a report showing US producer prices also unexpectedly edged higher in June. The Labor Department said its PPI for final demand inched up by 0.1% in June, matching the uptick seen in May. Economists had expected producer prices to come in unchanged. The modest increase in producer prices came as a steep drop in energy prices was more than offset by continued service price growth. The report said energy prices plunged by 3.1% in June after tumbling by 1.0% in the previous month, with gas prices plummeting by 5.0%. Excluding food and energy prices, however, core producer prices climbed by 0.3% in June after rising by 0.2% in May. (RTT)

China: Exports decline on higher US tariffs. China's exports declined in June after the US raised tariffs on Chinese goods and imports continued to fall on weakening domestic demand. Exports fell 1.3% on a yearly basis in June, data from the General Administration of Customs revealed. Shipments were forecast to fall 1.4% after rising 1.1% in May. Imports decreased markedly by 7.3% annually, bigger than the expected fall of 4.6%, but smaller than the 8.5% decline logged in May. As a result, the trade surplus increased to USD50.98bn from USD41.66bn in May. The surplus exceeded the forecast of USD45bn. Nonetheless, the trade surplus with the U.S. exceeded USD29bn in June. (RTT)

China: Bank lending increases in June. China's bank lending increased in June, figures from the People's Bank of China showed. Banks extended CNY1.66trn in June compared to CNY1.18trn in May. New Yuan lending was forecast to rise to CNY1.67trn. Similarly, aggregate financing climbed to CNY2.27trn from CNY1.4trn in the previous month. The expected level was CNY1.9trn. The broad money supply M2 grew at a steady pace of 8.5% in June. Economists had forecast an increase of 8.6%. With the monetary transmission mechanism being dampened by wider credit spreads and tight regulation of shadow banking, the pick-up in lending has been modest. (RTT)

India: Inflation accelerates more than expected. India's CPI accelerated at a faster-than-expected pace in June, figures from the statistics ministry showed. The CPI climbed 3.18% YoY following a 3.05% increase in May. Economists had forecast 3.13% inflation. The food price inflation accelerated to 2.17% from 1.83%. In June, the Reserve Bank of India cut the key interest rate by a quarter basis point to its lowest level since 2010 and tweaked its monetary policy stance to accommodative from neutral. Considering the impact of rate cuts and expectations of a normal monsoon, the bank revised down the path of CPI inflation to 3.0-3.1% for the 1H2020 and to 3.4-3.7% for the 2H2020. (RTT)

India: Industrial output rises more than forecast. India's industrial production grew more than expected in May, data from statistics ministry showed. Industrial production advanced 3.1% annually, bigger than the expected 2.9%. However, the rate was weaker than the revised 4.3% expansion seen in April. In the same period last year, production had expanded 3.8%. Mining output climbed 3.2% and manufacturing gained 2.5%. At the same time, electricity output grew sharply by 7.4%. The cumulative growth in overall industrial production for April to May period was 3.7%. (RTT)

Singapore: Slowest growth in a decade raises recession risk. Singapore reported dismal preliminary 2Q growth data, including the slowest pace of annual expansion in a decade, raising bets that a recession and monetary policy easing could be coming. The quarter’s 0.1% GDP expansion was below the 1.1% forecast in a poll and the slowest annual growth since 2Q2019, when it fell 1.2%. The trade ministry also said the economy shrank 3.4% on a seasonally adjusted and annualized basis - the biggest contraction in nearly seven years compared with a poll forecast of 0.1% growth and Jan-March’s 3.8% expansion. (Reuters) 


Maxis (Underperform, TP: RM4.90): Collaborates with Team Secret to empower local gamers . Maxis has taken steps to explore the eSports segment as the company believes there is a huge business potential that revolves around it. Head of brand and marketing Tai Kam Leong said the telco is constantly looking for opportunities to play a bigger role in the segment. (The Edge)

Daya Materials : Defaults on another AmBank payment, bringing total debt to RM1.53m. Daya Materials said it has defaulted on another payment to AmBank amounting to RM418,796, bringing its total debt to the bank to RM1.53m. It said its failure to pay for the banking facilities was due to its cash flow constraints. (The Edge)

Rev Asia: Inks term sheet to acquire Orissa Wicomm for RM12.4m. Rev Asia has inked a term sheet to buy a 60% stake in Orissa Wicomm Pte Ltd, a telecommunication and industrial sector integrated solutions provider, for up to RM12.4m. As it stands, it intends to pay RM4m cash and RM2m worth of new Rev Asia shares for the acquisition. The balance RM6.4m may be satisfied in two tranches of RM3.2m each, via cash or further new shares in Rev Asia. (The Edge)

Zelan: Loses arbitration to Indonesia project supplier . An international tribunal has sided with Dongfang Electric Corp in an USD1.15m suit filed by the company against Zelan. In total, Zelan will have to fork out RM5.74m in respect of the Dongfang arbitration. (The Edge)

JayCorp: Teams up with HK firm to make kitchen and bathroom furniture . JayCorp Bhd is partnering Hongkong-based Honsoar International Ltd (HIL) to manufacture and sell kitchen cabinets and bathroom vanity cabinets. The two companies signed an agreement to form a JV, Honsoar Cabinetry SB, to undertake the business. JayCorp will have a 60% equity interest in Honsoar Cabinetry, with HIL holding the remaining 40%. The JV is anticipated to commence business by the second quarter of the financial year ending July 31, 2020. (The Edge)

Rubber Gloves (Underweight): Average natural gas tariff to rise 5.3%. Gas Malaysia has announced that the average natural gas tariff after surcharge for the non-power sector in Peninsular Malaysia will increase 5.3% to RM34.66/MMBtu from July 15- Dec 30 this year. The revision, following a surcharge of RM1.92/MMBtu, applies to all tariff categories under the Gas Cost Pass-Through (GCPT) mechanism. (StarBiz)

Comment: The hike in natural gas tariff should not come as a surprise to the glove players as it is in accordance to the base tariff schedule announced by Gas Malaysia on 28 Dec 2016. The surcharge due to the higher actual gas costs against the reference gas cost is RM1.92/MMBtu, bringing 2H2019 average effective tariff to RM34.66/MMBtu, which is 5.3% higher than the 1H2019’s average effective tariff of RM32.92/MMBtu. The higher gas cost assumption has been imputed in our estimates earlier. Our Underweight call is reiterated, due to the ongoing oversupply condition in the sector and our expectation of a strengthening Ringgit. 

Market Update

The FBM KLCI might open stronger today after U.S. stocks set more records last Friday, racing in late trade to end in higher territory once again, after Federal Reserve Chairman Jerome Powell in two days of congressional testimony this week bolstered investor expectations for an interest-rate cut at the end of the month. The Dow Jones Industrial Average gained 244.02 points, or 0.90%, at 27,332.10, while the S&P 500 index added 13.83 points, or 0.46%, at 3,013.75. The Nasdaq Composite index closed 48.10 points higher at 8,244.14, a gain of 0.59%. Powell, in Thursday testimony before the Senate Banking Committee, said the U.S. economy is in a “very good place” but had only partly recovered from a “confidence shock” it suffered in May due to the U.S.- China trade war. Powell’s comments on Thursday, and his appearance before a House panel on Wednesday, were seen affirming expectations the Fed will move at its July 30-31 meeting to cut its fed-funds rate by at least a quarter point and to potentially deliver further cuts before year-end. European shares were marginally higher, with the Stoxx Europe 600 closing less than 0.1% higher.

Back home, the FBM KLCI index lost 9.81 points or 0.58% to 1,669.45 points on Friday. Trading volume decreased to 2.94bn worth RM2.28bn. Market breadth was negative with 401 gainers as compared to 453 losers. In the region, stocks closed higher with the China CSI 300 adding 0.6%, Japan’s Nikkei 225 rising 0.2% and Hong Kong’s Hang Seng Index advancing 0.1%.

Source: PublicInvest Research - 15 Jul 2019

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