Bimb Research Highlights

Author: kltrader   |   Latest post: Mon, 13 Jan 2020, 5:44 PM


Economics - US hiring slows and wage growth softens

Author: kltrader   |  Publish date: Mon, 13 Jan 2020, 5:44 PM

  • Employment up 145,000 in December
  • The unemployment rate held steady at 3.5%
  • Wage growth slowed but still respectable 0.2% mom and 2.9% yoy
  • Labor force participation rate unchanged at 63.2%
  • A decent end to 2019 for US’s job market

The non-farm payrolls rose by a moderate 145,000 in December, slightly below consensus expectations for 160,000. That is a mild deceleration from November’s revised 256,000 tally. Hiring was revised down slightly (-14,000) over the OctoberNovember period. The increase in new jobs in November was trimmed by 10,000 to 256,000, while October’s tally was reduced by 4,000 to 152,000.

Most of the new jobs are being created in the large service side of the economy. Retailers created 41,000 jobs, hotels and restaurants boosted staff by 40,000 and the health-care industry added 28,000 workers. Construction companies hired 20,000 people and is likely to continue being a positive contributor given growing optimism in the housing market (NAHB home builder sentiment at record highs). The smaller goods-producing part of the economy has mostly treaded water. Manufacturers lost 12,000 jobs in December, putting the increase for the entire year at a meagre 46,000. There’s a continued concerned about the prospects for jobs here given the weakness in business surveys, such as the ISM. Energy producers also reduced employment as they cope with lower oil prices. Rounding it out, government employment rose 6,000.

Unemployment rate held steady at a cycle-low 3.5% in December – and the U6 rate that captures a broader range of underemployment like discouraged workers fell to a new cycle-low 6.7%, down from 6.9% in November and almost a full percentage point lower than a year ago. The labor force participation rate was unchanged at 63.2%. Meanwhile, wage growth disappointed. Average hourly earnings rose only 0.1% on the month, and are now up 2.9% yoy, a deceleration from 3.1% in November, marking the first month below 3.0% since July 2018.

Source: BIMB Securities Research - 13 Jan 2020

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Economics - IPI growth rebounded to 5-month high

Author: kltrader   |  Publish date: Mon, 13 Jan 2020, 5:42 PM

  • IPI increased by 2.0% yoy but down 1.1% mom
  • Mining output revert to growth
  • Manufacturing sales remains lackluster
  • Productivity increased by 1.1% yoy
  • Global semiconductor sales decrease in November
  • Uncertainty in global factory output remains amid positive outlook on US-China trade friction
  • Industrial activities are expected to expand at moderate pace

IPI growth rebounded to 5-month high

Malaysia’s industrial production index (IPI) rose by 2.0% yoy in November, after a 0.3% gain in October, which was the weakest reading in nearly four years. November’s growth was the strongest yearly increase in industrial output since June 2019. The growth in November 2019 was driven by the increase in the index of manufacturing (2.5%), electricity (1.6%) and mining (0.5%).

However, on monthly basis, the IPI returned to negative growth after +3.2% expansion in October. The IPI declined 1.1% mom in November driven by the decrease in the index of manufacturing (Nov: -2.7%; Oct: +1.9%; Sep: +0.1%), and electricity (Nov: -2.8%; Oct: +0.9%; Sep: -2.7%) whilst output from mining decelerated (Nov: +4.9%; Oct: +8.8%; Sep: -1.0%). In a seasonally adjusted terms, IPI in November increased by 1.8% due to the increment recorded in all indices: mining index (5.5%), electricity index (1.2%) and manufacturing index (0.8%).

The IPI of Malaysia for the period of January to November 2019 recorded a growth of 2.4% as compared to the same period of the previous year. The increase was contributed by the growth in electricity and manufacturing sector with 3.5% respectively. Meanwhile, the mining sector declined by 1.4%.

Source: BIMB Securities Research - 13 Jan 2020

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Economics - Better performance in wholesale and retail trade in November

Author: kltrader   |  Publish date: Mon, 13 Jan 2020, 5:39 PM

  • Distributive trade sales value grew 5.3% yoy in November
  • Sales value increased to RM111.8bn in November
  • Better performance underpinned by retail and wholesale sales
  • Growth in global retail sales remained soft
  • Visit Malaysia 2020 could support retail market performance

Distributive trade growth inched higher to 5.3% yoy to RM111.8bn in November backed by better gain in both retail and wholesale trade. Retail trade increased RM3.0bn (7.0% yoy). Similarly, wholesale trade and motor vehicles rose RM2.2bn (4.3% yoy) and RM0.4bn (+3.0% yoy) respectively.

Retail sales increased by 7.0% yoy to RM45.9bn. The expansion was fuelled by retail sale of other goods in specialised stores and retail sale via stalls & market which recorded 8.6% respectively. This was followed by retail sale of food, beverages & tobacco in specialised stores (8.4%), retail sale in non-specialised stores (8.3%) and retail trade not in stores, stalls or markets (8.2%).

On monthly basis, sales value of wholesale & retail trade increased RM0.5bn or 0.4%, slightly slower when compared to 0.6% growth in October. Monthly sales of retail trade jumped 2.3% but sales value of motor vehicles slowed to 0.5%. Sales of wholesale trade decreased 1.2% mom.

Meanwhile, volume index of wholesale & retail trade posted a growth of 5.6% to reach 131.4 points as compared to the same month of the previous year. The key contributor for this growth was retail trade with 6.9%. This was followed by wholesale trade (4.8%) and motor vehicles (3.1%).

Growth in global retail sales remained soft

Indonesia's retail sales grew positively in November 2019 in spite of having slowed down in comparison with a month earlier. Retail trade in Indonesia increased 1.3% yoy in November, plummeting from 3.6% yoy a month before. This was the fifth straight month increase in retail sales. On a monthly basis, retail sales went up by 0.4% in November, the second straight month increase in six months. Retail sales in Singapore slid for the tenth consecutive month in November, weighed down again by falling vehicle sales. Retail sales dropped by 4.0% yoy in November, the ninth straight month of fall, after an upwardly revised 4.4% drop in the prior month. Excluding big-ticket motor vehicles, retail sales fell 0.6% yoy. On a monthly basis, retail sales went up 0.2% in November, following an upwardly revised 2.4% fall in October.

US retail sales increased less than expected in November as Americans cut back on discretionary spending. Retail sales rose 0.2% mom, easing from a revised 0.4% growth in October. On annual basis, retail trade increased 3.3% yoy in November. Excluding automobiles, gasoline, building materials and food services, retail sales edged up 0.1% mom in November after rising by an unrevised 0.3% in October. The so-called core retail sales correspond most closely with the consumer spending component of gross domestic product. Consumer spending, which accounts for more than two-thirds of US economic activity, grew at a 2.9% annualized rate in 3Q19. US economy expanded at a 2.1% pace in 3Q19. Eurozone's retail trade increased 1.0% mom in November of 2019, rebounding from a downwardly revised 0.3% decline in October. On a yearly basis, retail trade growth accelerated to 2.2% in November from a revised 1.7% in the previous month.

China’s retail sales rose 8.0% yoy in November, following a 7.2% gain in the previous month, buoyed by stimulus measures and the November Singles Day shopping extravaganza. This marked the biggest rise in retail trade since June 2019. Considering the January to November period, retail sales rose 8.0% from the corresponding period a year earlier. According to Commerce Ministry China's retail sales are expected to increase 8.0% in 2019 to CNY41.1tn (USD5.88tn). That compared with a 9.0% rise in retail sales in 2018.

Japan’s retail sales declined by 2.1% yoy in November, after a 7.0% fall in the previous month, as consumer sentiment remained depressed after October’s sales tax hike. On a monthly basis, retail sales advanced 4.5% in November, following a revised 14.2% fall in October. The negative impact from the sales tax hike in retail sales will likely continue and the focus is whether private consumption will start picking up this year. The weak readings could pressure the government to come up with new ways to boost growth and force the central bank to maintain its stimulus program to prevent the economy from slipping into recession.

Visit Malaysia 2020 could support retail market performance

Distributive trade growth inched higher to 5.3% yoy in November 2019 backed by better gain in both retail and wholesale trade. Retail and wholesale sales advanced at higher pace of 7.0% yoy and 4.3% yoy respectively partly attributed to Single Day and Black Friday sales.

Continuous positive performance in distributive sales could see higher growth of distributive sales in 4Q19. For 3Q19, distributive sales expanded at a moderating pace of 5.7% yoy, the lowest rate in three years compared to 6.1% yoy in 2Q19.

Encouraging trend of distributive sales in 2019 is expected to continue in 2020. However, expectation on rising inflationary pressure and slightly easing employment on top of currency risk could stifle domestic demand. Consequently, we are projecting private consumption growth to decelerate (2020f: 6.8%; 2019f: 7.4%) as consumers turn cautious due to slower income growth amid slow business spending and global economic uncertainty.

Looking ahead, the year 2020 will remain a challenge for the Malaysian retail industry. Externally, trade disputes among countries are not expected to end soon. Internally, economic policies that can stimulate consumer spending are limited in the near term.

The retail performance so far has been quite sluggish. As such, most retailers tone down their growth expectations and the performance of Malaysia’s retail market this year will depend on the growth of tourist arrivals spurred by the Visit Malaysia 2020 (VM2020) campaign. The outlook is positive, but very cautiously so and much would hinge on the growth of tourist arrivals this year, given that it is going to be a VM2020. Under the VM2020 campaign, the country is eyeing 30 million tourist arrivals, with a targeted income of RM100.0bn. For 2019, the Ministry of Tourism, Arts and Culture (Motac) aims to welcome 28.1 million tourists and collect RM92.2bn worth of tourist receipts. Domestic retail industry growth slumped to 1.8% in 3Q19 from a 6.7% growth in the same quarter last year. According to Retail Group Malaysia (RGM), Malaysia’s retail sales growth forecast for 2019 has been revised downwards for the third time following a lower-than-expected performance in 3Q19 and a weak projection for the rest of the year. Retail sales in 3Q19 grew a mere 1.8%.

Accordingly, retail sales growth from January to September was at 3.6%, compared with a 4.3% growth in the corresponding period of 2018. The poor performance in 3Q19 was also a result of a high base rate previous year as well as the low consumer confidence.

Retailers are expected to see RM107.5bn in sales in 2019 - a 3.7% growth. The 3.7% retail growth projection for 2019 is lower than the earlier projection of 4.4%. Retail sales grew 3.9% in 2018. Nevertheless, RGM has forecast an improved growth of 4.6% for 2020 representing RM112.4 billion in sales value.

Source: BIMB Securities Research - 13 Jan 2020

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Oil & Gas - Upcycle in upstream segment

Author: kltrader   |  Publish date: Mon, 13 Jan 2020, 5:30 PM

  • After years of underinvestment following crude oil price collapse in 2014/15, we see the recovery in Malaysia offshore activities gaining pace with more field development projects planned for the next 3 years. Fabricators, OSVs and field operators are the main beneficiaries of upcoming offshore field development, in our opinion.
  • We see the rise in marginal fields development as an opportunity for local service players to further enhance their positioning in the industry. We also expect some local service players to move up the value chain to becoming field operators amidst rising investment activities in upstream assets.
  • We forecast Brent to trade at an average of US$65/bbl in 2020.
  • Maintain Overweight on upstream players. Yinson (BUY, TP: RM7.70) remains our top pick as it rides on rising FPSO demand in Brazil while competition is limited. We also favour Hibiscus (BUY, TP: RM1.50) following its expansion plan amidst divestment of non-core assets by IOCs.

Expansion in Malaysia offshore development activities

Malaysia offshore activities are gaining pace with more field development projects planned for the next 3 years. With large discoveries becoming less common, Petronas focuses on monetising marginal fields using subsea tieback concept which is more cost-effective. It also looks to offer 4 marginal discovery fields and 3 late life assets to local players in the next bidding round. We believe these measures will continue to spur local offshore activities. As such, we expect fabricators and OSV players to benefit from these activities moving forward.

Huge investment opportunities for local players

The rise in marginal field development opens up opportunities for small-cap service companies such as Alam Maritim and Handal Energy to further enhance their positioning within the industry; the former provides pipeline installation service while the latter provides MOPU for marginal fields production. We opine that ex-RSC contractors such as Petra Energy, Uzma and Scomi Energy who have experience in marginal fields may participate in the next bidding round, hence moving up the value chain to becoming field operators. We also expect existing players such as Dialog to participate in the bidding round to deepen its investment in upstream assets.

Average Brent at US$65/bbl; OVERWEIGHT on Upstream

We are OVERWEIGHT on upstream players premised on recovery in offshore activities following underinvestment in prior years. We forecast Brent to average at US$65/bbl in 2020 which should continue to spur offshore investments.

Sector top pick; Yinson (TP: RM7.70) and Hibiscus (TP: RM1.50)

Yinson (BUY, TP: RM7.70) remains our top pick as it rides on rising FPSO demand in Brazil against the backdrop of limited competition. We also like Hibiscus (BUY, TP: RM1.50) as a pure-play oil field operator; we see there is vast opportunities for Hibiscus to pursue asset acquisitions as more IOCs are divesting non-core late-life assets while Petronas may favour lean cost operators such as Hibiscus for the next marginal fields and late life assets project award.

Source: BIMB Securities Research - 13 Jan 2020

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MPOB Stat Dec19 - Stockpiles improved 11% to 2.01m tonnes

Author: kltrader   |  Publish date: Fri, 10 Jan 2020, 5:34 PM

  • Inventory eased 11.0% mom to 2.01m tonnes
  • CPO production dropped 13.3% mom to 1.33m tonnes
  • Palm oil exports declined slightly by 0.67% mom to 1.40m tonnes.
  • Average CPO price forecast for 2020 of RM2,480/MT maintained.
  • Maintain Neutral on the sector.

Closing stocks end-2019 at 2.01m tonnes

Inventory in December 2019 fell by 10.99% mom to 2.007m tonnes (-38% yoy); the lowest since September 2017. The decline in inventory reflects the lower production and export recorded during the period. Breaking down the inventory level, both stocks from CPO and PPO (processed PO) decreased 11.6% mom (-47.5% yoy) and 10.4% mom (-22.6% yoy) respectively to 1.02m tonnes and 987.6k tonnes – with all states recorded lower stockpiles. We expect stock level to continue to be at this current level of 1.9m-2.0m tonnes in the next couple of months as production weaken (seasonal factor) whilst demand is expected to be supportive due to festivities before gradually decreasing in May-Dec 2020.

Export dropped slightly to 1.40m tonnes

Palm oil export volume dropped slightly by 0.67% mom to 1.396m tonnes in Dec 2019 as major importing countries like India, China, EU, Pakistan and Vietnam reduced their intake of PO. In short-to-medium term, we are cautious on India demand for Malaysia PO, given Indian government’s action to retaliate following Malaysian PM’s criticism of India over Kashmir issue.

Although the restriction of buying Malaysia’s refined PO is hurting our refiners, Malaysia can still export CPO to India as there is no import’s restriction on CPO. Given the tight supply situation of PO this year, we believe this will be a matter of time for Malaysia to regain market share from India as PO has price competitiveness against other vegetable oils. On the other hand, demand from China is expected to continue to be strong, thanks to US-China trade war and swine fever outbreaks that had impacted China’s domestic soybean crushing.

Production dropped 13.3% mom to 1.33m tonnes.

Malaysia’s CPO production weakened 13.27% mom (-26.22% yoy) to 1.334m tonnes in Dec 2019 as all states registered lower production. The lower production was led by Negeri Sembilan which dropped by 29.3% mom to 31.77k tonnes, followed by Pahang (-21.6%), Johor (-17.8%), Terengganu (-15.5%), Kelantan (-15.0%) and Sabah (-1123%). As for Jan-Dec 2019 period, CPO production increased 1.75% yoy to 19.86m tonnes; slightly below from our forecast of 19.99m tonnes (-0.65%). We forecast CPO production for this year to be flat or slightly reduced from 2019 figure on reduced yields due to dry weather, biological tree stress and low fertilisers usage.

Average CPO price forecast maintained at RM2,480/MT for 2020.

The 3-month CPO futures price in the month of December traded higher, closing the month at RM3,052/MT. In-line with the derivatives market, CPO price for local delivery, i.e. MPOB’s average CPO price increased 12.8% mom to RM2,813/MT against RM2,493.50/MT recorded in the previous month. Nevertheless, for Jan-Dec 2019 period, the MPOB average CPO price was down by RM116/MT or -5.2% to RM2,119/MT against RM2,235/MT recorded in the same period last year; but 3.4% above our 2019 average CPO price forecast of RM2,050/MT.

We are predicting that CPO price for the first-quarter of 2020 to trade within a range of RM3,100/MT and RM2,800/MT; taking cue from the current bullish crude palm oil’s price outlook that is supported by positive sentiment, i.e. 1) higher biodiesel take-off, 2) lower FFB production from Malaysia and Indonesia, and 3) rally in soybean oil prices - tighter supply of vegetable oil especially in US.

Risk factors would include 1) lower-than-expected demand due to changes in government policies of importing countries and 2) weakening of crude oil prices

Maintain “Neutral”

Maintain Neutral on the sector with likely scenario that a higher ASP of palm oil is insufficient to compensate for the expected weak production and higher costs – which would continue to be a risk to planters’ earnings. As most of the plantation companies under our coverage are currently fully valued, in our view, we have Hold recommendation on KLK (TP: RM23.80), HAPL (TP: RM1.90), TSH (TP: RM1.21), GENP (TP: RM10.60), SOP (TP: RM3.72), FGV (TP: RM1.39), Sarawak Plant (TP: RM2.05), SDPL (TP: RM5.00) and IOI (TP: RM5.00) whilst nonrated for TH Plant.

Source: BIMB Securities Research - 10 Jan 2020

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Economics - Malaysia Economy Fixed Income Dec19

Author: kltrader   |  Publish date: Thu, 9 Jan 2020, 5:08 PM

Foreigners remain net buyers of bonds in December

  • Foreign holdings of MYR debts securities increased to RM204.7bn
  • Foreigners bought RM8.4bn of MGS and GII
  • Total portfolio inflow of RM6.9bn for equities and debt securities combined
  • Expected gross MGS/MGII supply of RM115bn-RM118bn for 2020

Non-resident portfolio inflows continued in December, solely driven by hefty foreign purchases of Malaysian debt securities, which fully offset the persistent foreign outflows from the equity market. The optimism over an agreement to the Phase One trade deal of US-China trade talks were key factors spurring portfolio flows into emerging markets (EMs) including Malaysia.

Looking into details of Malaysian debt securities, all but Treasury bills and Malaysian Islamic Treasury Bills garnered increased foreign buying interest. Malaysian Government Securities (MGS) was the biggest beneficiary, attracting RM5.5bn of foreign purchases (Nov: +RM4.7bn) while GII attracted modest flows of RM2.7bn (Nov: +RM3.0bn). Percentage wise, foreign holdings of MGS increased to 41.6% whilst foreign holdings of GII increased to 6.2% of the outstanding. Correspondingly, foreign holdings of Malaysian government bonds (MGS & GII) surged by RM8.4bn to RM185.0bn in December (Nov: +RM7.7 to RM176.8bn), which is equivalent to 25.2% of total outstanding (Nov: 24.2%), marking the largest shareholding since May 2018. Foreign holdings of discount instruments decreased by RM0.7bn to RM6.5bn.

Foreign holdings of PDS increased by RM0.6bn to RM13.2bn. As a result, in combined amounts (inclusive of short-term bills/notes and corporate bonds/sukuk), foreign holding levels in December 2019 were higher by RM8.1bn, bringing total foreign ownership of MYR bonds to RM204.7bn or 13.7%.

As at end-December, international investors bought RM8.1bn of Malaysian bonds (Nov: +RM8.0bn; Oct: -RM0.5bn; Sep: +RM0.9bn; Aug: -RM0.1bn; Jul: +RM5.7bn). Nevertheless, foreign investors continued to shy away from Malaysian equities for the sixth consecutive month, decreasing their holdings by RM1.2bn in December (Nov: -RM1.5bn; Oct: -RM485m; Sep: -RM559m; Aug: -RM2.6bn; Jul: -RM79m). This means a total portfolio inflow of RM6.9bn for equities and debt securities combined.

Source: BIMB Securities Research - 9 Jan 2020

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