Highlights

PublicInvest Research Headlines - 26 Jul 2019

Date: 26/07/2019

Source  :  PUBLIC BANK
Stock  :  AIRASIA       Price Target  :  2.33      |      Price Call  :  HOLD
        Last Price  :  1.65      |      Upside/Downside  :  +0.68 (41.21%)
 


Economy

US: Business investment stabilizing, economy slowing. New orders for key US-made capital goods surged in June, suggesting some improvement in business investment, but economic growth is still expected to have slowed sharply in the 2Q amid weaker exports and a smaller inventory build. The Commerce Department said orders for non defense capital goods excluding aircraft, a closely watched proxy for business spending plans, jumped 1.9% last month after rising 0.3% in May. Orders for these so-called core capital goods in June increased across the board, with demand for machinery rising by the most in nearly 1-1/2 years. “The stronger-than-expected orders are a positive sign that business investment and manufacturing sector activity have not weakened substantially further following softness earlier in the year,” said Veronica Clark, an economist at Citi in New York. (Reuters)

US: Weekly jobless claims unexpectedly dip to 206,000. After reporting an uptick in first-time claims for US unemployment benefits in the previous week, the Labor Department released a report on Thursday showing an unexpected pullback in initial jobless claims in the week ended July 20th. The report said initial jobless claims fell to 206,000, a decrease of 10,000 from the previous week's unrevised level of 216,000. The drop surprised economists, who had expected jobless claims to inch up to 219,000. With the unexpected decrease, jobless claims hit their lowest level since falling to a nearly 50-year low of 193,000 in the week ended April 13th. The Labor Department said the less volatile four-week moving average also dipped to 213,000, a decrease of 5,750 from the previous week's unrevised average of 218,750. Continuing claims, a reading on the number of people receiving ongoing unemployment assistance, also dropped by 13,000 to 1.6m in the week ended July 13th. (RTT)

US: Durable goods orders show substantial rebound in June. A report released by the Commerce Department showed a much stronger than expected rebound in new orders for US manufactured durable goods in the month of June, although the report also showed a much steeper than previously reported drop in orders in May. The Commerce Department said durable goods orders spiked by 2.0% in June after plunging by a revised 2.3% in May. Economists had expected durable goods to climb by 0.7% compared to the 1.3% slump originally reported for the previous month. The rebound in durable goods orders received a boost from a turnaround in orders for transportation equipment, which surged up by 3.8% in June after tumbling by 7.5% in May. Orders for non-defense aircraft and parts soared by 75.5% in June after plummeting by 52.2% in May, while orders for motor vehicles and parts also showed a significant increase. (Reuters)

EU: Draghi says significant ECB stimulus needed as outlook getting 'worse and worse'. The ECB President Mario Draghi on Thursday stressed the need for significant stimulus for the euro area economy as policymakers assessed that the outlook was getting worse, especially in manufacturing, which is a crucial sector for the big economies in the bloc. The central bank left its interest rates unchanged earlier on Thursday and altered its forward guidance to signal that they will be reduced in future, and that policymakers are planning a comprehensive stimulus package. The ECB staffs have been tasked with examining the possibility of further adjustments to forward guidance on policy rates, measures to mitigate the effect of negative interest rates such as a tiering system, and the size and composition of a new asset purchase programme, the bank said. (RTT)

EU: German business morale weakest since 2013. German business confidence weakened to the lowest level in more than six years in July on increased skepticism among companies amid fears of economic contraction, survey data from the ifo Institute. The business climate index fell more-than-expected to 95.7 in July from revised 97.5 in June. This was the lowest score since April 2013. The score was forecast to drop to 97.2. Companies were less satisfied with their current business situation and skepticism about future increased. The German economy is navigating troubled waters. July's decline in the business confidence is consistent with the message from the PMI that the German economy made a very slow start to the 3Q. Both ifo current and expectations indicators deteriorated in July. (RTT)

Japan: Tokyo inflation slows to 0.9% on year in July. Consumer prices in the Tokyo region of Japan were up 0.9% on year in July, the Ministry of Internal Affairs and Communications said. That was shy of expectations for a gain of 0.9% and down from 1.1% in June. Core CPI which excludes volatile food prices also rose an annual 0.9%. That was unchanged from the June reading, although it exceeded estimates for 0.8%. On a seasonally adjusted monthly basis, Tokyo overall inflation and core CPI both were up 0.1%. (RTT) 

Markets

AirAsia (Neutral, TP: RM2.33): Inks MoU for Thailand JV to integrate cargo capacity. AirAsia Group has proposed a JV in Thailand for its indirect wholly-owned subsidiary Teleport Everywhere Pte Ltd to provide logistics services to its associate companies Thai AirAsia Co Ltd and Thai AirAsia X Co Ltd. (The Edge)

Comments: AirAsia Group announced that its indirect wholly-owned subsidiary, Teleport Everywhere Pte Ltd (Teleport), the cargo and logistics services of AirAsia, and its associate company, Thai AirAsia Co Ltd (TAA) and Thai AirAsia X Co Ltd (TAAX) had jointly signed a Memorandum of Understanding (MOU) with Triple i Logistics Public Company Limited (Triple i). The definite agreement is only expected to be signed by 31 December 2019. We are positive on the proposed collaboration as it allows Teleport to leverage and integrate the rights to the cargo capacity in Thailand for TAA and TAAX as well expanded its logistics operation to the wider AirAsia Group’s network in the future, hence improve the Group's cost efficiency and productivity moving forward. We maintain our forecast and Neutral call on AirAsia, with target price of RM2.33 pegged on 11x FY20F EPS.

Alliance Bank (Outperform, TP: RM4.60): Allocates RM50m for digitalization. Alliance Bank has earmarked RM50m as capex to enhance its digital value propositions for customers in the FY20. CEO Joel Kornreich explained that the bank has been launching more digital products and services to support more businesses, especially the SMEs amid the challenging economic outlook. "We are putting in a lot of effort in accelerating to give all of that to SMEs. We are actually very sanguine about our ability to make a difference in the market and to compete very, very effectively," said Kornreich. In FY19, the bank has stepped up on its digitisation efforts to provide faster, simpler, and more responsive service to its clients, it said. (The Edge)

Hartalega (Underperform, TP: RM4.00): Sets aside RM745m for capex for next three years. Hartalega Holdings will set aside RM745m for capex for the next three years, mainly for capacity expansion and technological advancement. Of the total capex, RM630m will be for plant expansions and RM115m for investment into industrial 4.0 technologies. The plant expansion plan will see Hartalega's annual gloves production capacity increase to 42 billion pieces in the next three years, from 34 billion pieces currently, Hartalega MD Kuan Mun Leong told. (The Edge)

Radiant Globaltech: Unit bags RM20m contract. Radiant Globaltech has been awarded a contract worth RM20m for the supply of retail technology hardware and provision of maintenance services for LG CNS Malaysia SB. The group said the tenure of the contract covers the deployment stage and the subsequent support and maintenance stage, from Aug 2019 to Feb 2023. (The Edge)

TA Global: Buys Four Points by Sheraton Bangkok for RM299.3m. TA Global is acquiring Four Points by Sheraton Bangkok for THB2.25bn (c. RM299.93m) cash. The group to had entered into a SPA on July 24 with Destination Resorts Co Ltd for the hotel purchase. The hotel comprises a seven-storey building with 268 guest rooms. For the FY18, it recorded a net profit of THB108.82m (RM14.51m), while its occupancy rate stands at 85.21%. TA Global said the proposed acquisition will be funded by 40% internally generated funds and 60% external borrowings. (SunBiz) 

Market Update

The FBM KLCI might open weaker today as U.S. stocks finished lower Thursday, retreating from records for the S&P 500 and Nasdaq, after a series of mostly disappointing earnings reports and fears that the Federal Reserve may be less aggressive than hoped in cutting interest rates next week after the European Central Bank’s policy decision. Technology-related stocks were also under pressure after electric-car maker Tesla failed to meet earnings expectations, while Wall Street digested a deluge of earnings reports on one of the busiest days of this quarterly earnings season. The Dow Jones Industrial Average closed 128.99 points, or 0.5%, lower at 27,140.98, representing its worst day since June 25. The S&P 500 index lost 15.89 points, or 0.5%, to 3,003.67, and the Nasdaq Composite Index fell 82.96 points, or 1%, to end at 8,238.54, also marking the tech-heavy index’s steepest daily slide since June 25. European stocks, as gauged by the Stoxx Europe 600 index closed 0.6% lower at 389.52.

Back home, the FBM KLCI index gained 4.17 points or 0.25% to 1,656.58 points on Thursday. Trading volume decreased to 2.76bn worth RM2.00bn. Market breadth was negative with 301 gainers as compared to 500 losers. The KLCI closed higher at 1,656.58 points amid overnight mixed performance in US markets. The performance of our local bourse was lifted up by buying interest in heavy weight counters led by Press Metal. In the region, the Shanghai Composite ended the day up 0.5%, the Nikkei 225 rose 0.2% and Hong Kong’s Hang Seng Index climbed 0.3%.

Source: PublicInvest Research - 26 Jul 2019

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