Economy

US: Consumer prices accelerate; core CPI posts largest gain in a year. US consumer prices rose more than expected in Jan, with a measure of underlying inflation posting its biggest gain in a year, strengthening expectations that price pressures will accelerate this year and prompt a faster pace of interest rate increases from the Federal Reserve. The Labor Department said its CPI increased 0.5% last month as households paid more for gasoline, rental accommodation and healthcare. The CPI rose 0.2% in Dec. The YoY increase in the CPI was unchanged at 2.1% as the large price gains from last year dropped out of the calculation. (Reuters)

US: Retail sales decline after Dec revised down. US retail sales unexpectedly declined in Jan and Dec receipts were revised lower, indicating consumer demand in the 1Q may cool, according to Commerce Department figures released Wednesday. The decrease in Jan sales and the downward revision to Dec were spread throughout the major retail categories. The soft report suggests consumer spending, the biggest part of the economy, started the current quarter with less momentum following a 3.8% annualized increase in the 4Q. (Bloomberg)

US: Atlanta Fed cuts 1Q GDP view to 3.2%. The US economy is on track to grow at a 3.2% annualized rate in the 1Q following the release of the government’s Jan reports on retail sales and consumer prices, the Atlanta Federal Reserve’s GDPNow forecast model showed on Wednesday. The latest estimate on GDP was slower than the 4.0% growth pace calculated on Feb. 9, the Atlanta Fed said. (Reuters)

US: Business inventories rise more than expected in Dec. US business inventories increased a bit more than expected in Dec, lifted by solid gains in stocks at manufacturers and wholesalers. The Commerce Department said on Wednesday that business inventories rose 0.4% after a similar gain in Nov. Retail inventories rose 0.2% in Dec as previously reported in an advance report last month. Retail inventories gained 0.2% in Nov. Motor vehicle inventories fell 0.4% as previously reported after decreasing 0.2% in Nov. (Reuters)

EU: Euro-area economy keeps cruising speed as outlook improves. The euro-area economy maintained its robust growth pace at the end of last year, setting the stage for another solid performance in 2018 that may sway ECB policy makers into winding down unprecedented stimulus. GDP increased 0.6% from the previous three months, Eurostat reported, confirming a Jan 30 estimate. Growth slowed in Germany and Italy, while the pace of expansion accelerated in the Netherlands and Portugal. (Bloomberg)

China: Might look at relaxing capital curbs, but slowly, gently. In the fraught history of Chinese currency policy, a new chapter could be looming this year as authorities consider the consequences of a yuan that’s testing its strongest levels since mid-2015. After successfully shutting off potentially destabilizing capital outflows and putting a floor under the yuan, policy makers may now have the luxury of looking at relaxing some of the strictures on domestic money. (Bloomberg)

Markets

KPS: Buys plastic injection moulding firm for RM250m. Kumpulan Perangsang Selangor (KPS), the company controlled by the Selangor state government, is buying a plastic injection moulding firm in Penang for RM250m cash. The purchase of CPI (Penang) SB marks KPS’ entry into the electronic manufacturing services (EMS) sector with global clientele across the automotive, healthcare, telecommunications, as well as industrial and consumer industries. The deal comes with a profit guarantee of a profit after tax not less than RM25m in the FY18 and at least RM26m in FY19. (StarBiz)

Protasco: Gets concession to maintain federal roads in Sarawak. An associate company of Protasco has entered into a concession agreement with the federal government for the maintenance of federal roads in Sarawak. Protasco said DAL HCM SB has been granted the right to undertake routine maintenance, periodic maintenance, emergency works and other activities on part of the federal roads consisting 751km. DAL HCM is a 30%-owned unit of HCM Engineering SB, which in turn is wholly owned by Protasco. Protasco said the 10-year concession commences on Sept 1, 2018. (The Edge)

Willowglen: Gets RM9.3m lift contract. Technology firm Willowglen MSC has been awarded an RM9.26m non-renewable contract by Surbana Technologies Pte Ltd for lift monitoring devices. The company said that the contract commenced from Jan 1 this year and will be completed by Dec 31, 2021. It said the contract will contribute positively to the company’s earnings and net assets per share for FY18 to FY21. (StarBiz)

Rex Industry: Plans rights issue with bonus to raise RM20.8m. Rex Industry plans to undertake a two-for-nine rights issue to raise RM20.83m for investments, debt repayment and working capital. As an incentive for shareholders to subscribe to the rights issue, the canned food manufacturer has attached a three-for-four bonus issue to the rights issue. The rights issue involves 54.81m rights shares at an indicative issue price of 38 sen per rights share. (The Edge)

Yinson: To issue RM1.5bn Islamic bonds to refinance loans and fund working capital. Yinson Holdings’ wholly-owned subsidiary is issuing RM1.5bn worth of mudharabah bonds to refinance its outstanding financing facilities and sukuk facilities, and fund its working capital, equity contribution and capital expenditure for new projects. Yinson said Yinson TMC SB made a lodgement with the Securities Commission Malaysia (SC) to establish the sukuk mudharabah programme. The programme would have a perpetual tenure with the first issuance to be made within 60 business days. (The Edge)

Property (Neutral): Unsold homes in Malaysia rise to decade high in 2017, says Bank Negara. Unsold residential properties in Malaysia rose to their highest in a decade last year as lofty prices and a lack of affordable housing dampened purchases, the country's central bank said. Bank Negara Malaysia said that a supply-demand mismatch and slower income growth had led to a housing affordability issue in Malaysia. The acute supply-demand mismatch brought the level of total unsold residential properties to a decadehigh 146,497 units as of the 2Q 2017, an increase from 130,690 units in the 1Q, it said. (The Edge)

Market Update

US markets regained more of last week’s lost ground as stronger inflation numbers were tempered by weaker than expected retail sales. While bond traders are now betting there could 4 rate hikes by the US Federal Reserve (FED) this year versus the guided 3, equity investors are slowing coming round to the reality of a world with higher inflation and that the FED’s hikes will be gradual. The S&P 500 climbed for a fourth day, up 1.3%, led by banks and durable goods makers. The broader based Dow Jones Industrial Average rose 1.0% while the tech-heavy Nasdaq Composite gained a stronger 1.9%. European markets brushed aside US related worries to focus instead on the continent’s own growth prospects and earnings announcements, both of which continue to show strong improvements. The euro-area economy maintained its robust growth pace at the end of last year, setting the stage for another solid performance in 2018. Italy’s FTSE MIB led index gainers amongst the major economies, up 1.8% for the day. Germany’s DAX and France’s CAC 40 rose 1.2% and 1.1% respectively while UK’s FTSE 100 and Spain’s IBEX 35 gained 0.6% and 0.4% to round off a good day for European equities. Asian markets were mixed earlier in the day as investors waited on the US inflation and retail sales numbers. A continued surge in the Yen weighed on Japanese equities again, with the benchmark TOPIX and Nikkei 225 indices down 0.8% and 0.4% respectively. Market activity was otherwise lackluster ahead of the Chinese New Year holidays which will see a few markets around the region closing for various periods of time. The Hang Seng Index surged 2.3% while the Shanghai Composite rose 0.5%. Singapore’s Straits Times Index slipped 0.4% as the country’s GDP growth missed expectations however.

The FBM KLCI only inched 0.1% higher despite a 5.9% 2017 GDP growth announcement which beat most expectations. Serba Dinamik announced the clinching of a number of contracts worth a collective RM830.9m while Dialog Group reported a 1HFY18 net profit of RM276.7m (+60.2% YoY). Please refer to the accompanying reports for more details. Kumpulan Perangsang Selangor is planning to enter the electronic manufacturing services (EMS) segment, following its acquisition of a Penang-based fully integrated EMS player, CPI (Penang) Sdn Bhd, for RM250mn. The acquisition comes with a profit guarantee of no less than RM25mn for FY18, and no less than RM26mn for FY19.

Source: PublicInvest Research - 15 Feb 2018