PublicInvest Research Headlines - 18 Dec 2018

Date: 18/12/2018

Source  :  PUBLIC BANK
Stock  :  CIMB       Price Target  :  6.50      |      Price Call  :  BUY
        Last Price  :  3.70      |      Upside/Downside  :  +2.80 (75.68%)


US: Fed faces communication challenge on rates. Federal Reserve officials will debate this week how to signal less certainty over the path of interest rates without implying they are done raising them after their two-day policy meeting ends Wednesday. One challenge is deciding how to alter the Fed’s post-meeting policy statement. Since the central bank began raising rates three years ago, it has indicated the potential for “gradual increases.” It signaled greater confidence in the path since Jan, when it started saying it expected “further gradual increases.” Officials have been debating how and when to usher this language out of the statement now that their policy path looks less certain than it did just three months ago. They are likely to raise their benchmark federal funds rate to a range between 2.25% and 2.5% at this week’s meeting, the fourth such increase this year. (The Wall Street Journal)

US: Trump administration blocks tax break for alcohol companies. The Trump administration on Monday finalized a regulation limiting the ability of US wineries and global alcohol companies to reduce import taxes. In the government’s view, the new rules stop wine and spirits companies from double-dipping on tax breaks. The government contends that the companies are getting or seeking a tax advantage for imports over domestic production. The change will yield more than USD600m for the government over the next decade by reversing the tax treatment the wine industry now gets and potentially prevent billions of dollars more in refund claims from spirits companies and others seeking similar rulings, according to the rule from the Treasury Department and US Customs and Border Protection. (The Wall Street Journal)

US: Homebuilder confidence unexpectedly slumps to three-year low in Dec. After reporting a sharp pullback in US homebuilder confidence in the previous month, the National Association of Home Builders released a report unexpectedly showing a continued deterioration in confidence in the month of Dec. The report said the NAHB/Wells Fargo Housing Market Index dropped to 56 in Dec after tumbling to 60 in Nov. Economists had expected the index to inch up to 61. With the unexpected monthly decrease, the housing market index tumbled to its lowest level since hitting 54 in May of 2015. The fact that builder confidence dropped significantly in areas of the country with high home prices shows how the growing housing affordability crisis is hurting the market. This housing slowdown is an early indicator of economic softening, and it is important that builders manage supply side costs to keep home prices competitive for buyers at different price points. (RTT)

US, China: China trade steps seen as good start but leave core US demands untouched. The US has welcomed Chinese concessions since the two declared a trade war truce in early Dec, but trade experts and people familiar with negotiations say Beijing needs to do far more to meet US demands for long-term change in how China does business. US President Donald Trump and his Chinese counterpart, Xi Jinping, agreed on Dec 1 in Buenos Aires to stop escalating tit-for-tat tariffs that have disrupted the flow of hundreds of billions of dollars of goods between the world’s two biggest economies. Since then, Beijing has resumed buying US soybeans, the single largest agricultural export between the two countries. China has also cut tariffs on imports of cars from the United States, dialled back on an industrial development plan known as “Made in China 2025,” and told its state refiners to buy more US oil. (Reuters)

EU: Euro-area inflation revised down after ECB pledged to halt QE. Four days after the ECB decided to end asset purchases, data showed a larger-than-anticipated slowdown in euro-area inflation. Consumer price growth slipped to 1.9% in Nov, the least since May, from 2.2% the previous month. That’s below the initial estimate of 2%. A measure stripping out volatile components such as food and energy that’s closely watched by policy makers was unrevised at 1%. Since the ECB’s Governing Council devised plans in the summer to halt quantitative easing at EUR2.6trn (USD3trn) by the end of the year, the economy has showed signs of weakening momentum. Output contracted in two of the region’s three largest economies in the third quarter, and confidence in a strong rebound have diminished amid trade tensions, the threat of a no-deal Brexit and Italy’s fiscal troubles. (Bloomberg)

Japan: Central bank to warn of rising growth risks, policy seen steady. As the risks to the global economy rises, the BOJ is expected to join a chorus of warnings from other policy-makers of the threat to growth from protectionism and signal its resolve to keep the money spigot open. At this week’s policy review, the BOJ is seen maintaining its ultra-easy monetary settings even as years of heavy bond buying dries up market liquidity and hurts bank profits, leaving it well behind its US and European counterparts in dialing back crisis-mode stimulus. Adding to the plight of narrowing margins for financial institutions, the 10-year yield hit a five-month low of 0.025% on Monday as investors flocked to the safety of Japanese government bonds. (Reuters)

Singapore: Exports post first annual decline in 8 months, China risks grow. Singapore’s exports fell for the first time in eight months on a YoY basis in Nov with shipments to China, its biggest market, continuing their decline on slowing growth in the world’s second largest economy. The contraction comes as economists grow increasingly worried about the impact of Sino-US trade tensions on demand from China, with many expecting the dispute to hurt the city-state’s trade dependent economy in months to come. Singapore’s non-oil domestic exports fell 2.6% in Nov YoY, a sharp contrast to the 1.2% increase predicted by economists in a Reuters poll, according to the data from trade agency International Enterprise Singapore. It was also sharply down from the revised 8.2% rise the month before and the first negative reading since March. (Reuters)

Singapore: Home sales surge as developers market more projects. Private home sales in Singapore more than doubled in Nov from Oct as developers marketed more projects. Home builders in the city-state sold 1,198 units last month versus 487 apartments in Oct, the Urban Redevelopment Authority said. Home sales rose to the highest since July. One of the main reasons for the advance is as simple as home builders bringing more new projects to market. They included condos with pools, leisure areas and landscape gardens such as Kent Ridge Hill Residences, Parc Esta, Whistler Grand and Belgravia Green. The total number of apartments put up for sale last month was 1,341, compared with 202 in Oct. (Bloomberg)

Indonesia: Trade deficit balloons to five-year high. Indonesia posted its widest trade deficit in more than five years in Nov as exports fell, adding pressure on the currency. The trade deficit was USD2.1bn, much bigger than the USD735m shortfall predicted by economists in a Bloomberg survey, and the worst result since July 2013. Imports jumped 11.7% from a year earlier, according to figures released by the statistics bureau. Interestingly, that is the weakest pace since March after the government adopted measures to reduce imports, including higher tariffs on some goods. Exports fell 3.3%, its first decline since June 2017. (Bloomberg)


CIMB (Outperform, TP: RM6.50): Files for arbitration to halt PLUS Malaysia's RFID plans. CIMB Group Holdings has filed and served a notice of arbitration against PLUS Malaysia, claiming the latter had breached its obligations under a joint venture agreement in relation to Touch 'N Go SB by launching its own toll collection system. PLUS breached its obligations under the 1998 JVA by commencing and launching its own PLUS Radio Frequency Identification System. Under the JVA, CIMB has a 52% stake in Touch ‘N Go, while PLUS and MTD Equity SB hold 28% and 20% respectively. (The Edge)

Destini: Bags Pan Malaysia tubular handling contract from Petronas. Destini has won a 3-year contract for the provision of tubular handling, conductor installation and slot recovery equipment and services for Petronas Carigali SB, the exploration arm of Petroliam Nasional. The contract was awarded to its wholly-owned Destini Oil Services SB (DOS) under the Pan Malaysia Petroleum Arrangement Contractors (PAC) Operators’ Drilling Programme by Petronas Carigali. (The Edge)

Hai-O: Lower MLM sales drag down Hai-O 2Q net profit. Hai-O Enterprise net profit for the 2QFY18 fell 37% to RM13.6m, from RM21.44m a year earlier, on lower sales from its multilevel marketing (MLM) segment. This lowered EPS to 4.68sen from 7.40sen previously. Quarterly revenue fell 25% to RM92.17m from RM123.53m a year ago. Nevertheless, the group declared an interim dividend of 4sen per share, albeit lower than the 6sen declared a year ago. (The Edge)

WZ Satu: Bags RM133.5m Gemas-JB double track subcontract. WZ Satu wholly owned unit WZS BinaRaya SB has bagged a RM133.5m subcontract job to construct bridges from Genuang to Paloh for the Gemas-Johor Baru electrified double track project. The company accepted the letter of award from SIPP-YTL JV for the project and is expected to be completed by May 17, 2020. (The Edge)

Scomi: Confirms Mumbai monorail contract termination. Scomi Group confirmed that the Mumbai Metropolitan Region Development Authority (MMRDA) has terminated the monorail contract awarded to Scomi and its Indian partner 10 years ago. Scomi’s unit Scomi Engineering, and Larsen & Toubro Ltd (L&T), are the two members of a consortium that operates India’s first monorail network. The consortium was awarded the contract for the design, development, construction, operation and maintenance of the 19.5km monorail network in the Mumbai Metropolitan Region in November 2008. (The Edge)

Banking (Neutral): Cannot rely on exclusion clauses to escape liability. Commercial banks cannot rely on exclusion clauses in agreements to stop their clients from suing for negligence, the Federal Court said. Judge Balia Yusof Wahi said the customer is made to accept the contract as prepared by the other party in today’s commercial world. Balia said this when dismissing an appeal by CIMB Bank brought by a British couple over a banking error that cost them a property in Kuala Lumpur. In this particular instance, where a customer had brought a suit against the bank, he said it merited public policy for the court to interfere. (The Edge)

Market Update

The FBM KLCI might open lower today after growing concerns over the health of the global economy pushed US stocks sharply lower for the second day in a row overnight as participants awaited the outcome of a two-day meeting of the Federal Reserve’s policy setting Open Market Committee. The S&P 500 recorded its lowest close since October 2017 after an early attempt to rally ran out of steam. The dollar eased back from a 16-month high touched on Friday against a basket of currencies, with the yen and Swiss franc in particular gaining ground, while the nervous mood across equity markets helped fuel demand for US Treasuries. The big focus this week will be the Fed’s decision on interest rates on Wednesday — a 25 basis point rise is widely expected — and whether the central bank signals fewer increases next year via its “dot plot” projections, particularly given a more “dovish” shift in its communications. Recent gloomy data releases in China and the eurozone have highlighted a darkening outlook for global growth, while an inversion across part of the US Treasury yield curve has been viewed by some as a warning that recession may not be too far away. On Wall Street, the S&P 500 fell 2.1% at 2,545, its lowest finish since October 9 2017, with all of its sectors ending in the red. The Dow Jones Industrial Average also finished 2.1% lower, while the Nasdaq Composite shed 2.2%. In Europe, the pan-regional Stoxx 600 fell 1.1% — having been down 1.4% at one point — as the Xetra Dax in Frankfurt shed 0.9% and London’s FTSE 100 ended 1.1% lower.

Back home, the FBM KLCI index lost 20.34 points or 1.22% to 1,641.62 points on Monday. Trading volume decreased to 1.47bn worth RM1.18bn. Market breadth was negative with 179 gainers as compared to 690 losers. In the region, the CSI 300 index of major Shanghai and Shenzhen stocks closed 0.2% down. Hong Kong’s Hang Seng also finished marginally lower. The picture was brighter in Japan, with Tokyo’s Topix adding 0.2%.

Source: PublicInvest Research - 18 Dec 2018

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