Economy

US : Factory orders jump more than expected in Oct. Factory orders shot up by 1.0% in Oct after rising by 0.3% in Sept. The bigger than expected increase in factory orders came as orders for durable goods surged by 1.1% in Oct after edging up by 0.2% in Sept. Orders for transportation equipment led the way higher, soaring by 2.2%. Orders for non-durable goods also jumped by 1.0% in Oct after rising by 0.3% in the previous month. Shipments of manufactured goods advanced by 0.7% in Oct following a 0.3% increase in Sept. (RTT)

US : Services index unexpectedly indicates faster growth in Nov. Services PMI climbed to 56.5 in Nov from 54.4 in Oct, with a reading above 50 indicating growth in the sector. The increase surprised economists, who had expected the index to dip to 53.1. The unexpected advance by the headline index partly reflected a significant acceleration in the pace of growth in business activity, with the business activity index surging to 64.7 in Nov from 55.7 in Oct. (RTT)

EU: Eurozone retail sales drop most in 10 months. Eurozone retail sales logged its biggest decline so far this year in Oct on weaker food and non-food products turnover as record inflation squeezed consumer spending. Retail sales slid 1.8% MoM in Oct, in contrast to the 0.8% increase in Sept. This was slightly bigger than economists' forecast of -1.7%. Sales declined the most since Dec 2021, when turnover was down 2.6%. The monthly fall was driven by the 2.1% decrease in non-food products turnover and 1.5% fall in sales of food, drinks and tobacco. (RTT)

UK: In recession as services fall further amid cost of living crisis. The UK service sector registered a moderate contraction in Nov as economic uncertainty and the cost of living crisis dampened discretionary spending, which in turn hurt demand. With rocketing inflation and negative growth, Britain is in stagflation. Final headline services PMI posted 48.8 in Nov, in line with flash estimate. The score was unchanged since Oct, when the index dropped to its lowest since Jan 2021. The economy is likely to have fallen into a recession in 3Q2022, when GDP shrank by 0.2%. For this year, the CBI projected economic growth of 4.5%. (RTT)

China: Services PMI slips to 46.7 in Nov. The services sector in China continued to contract in Nov, and at a faster pace with a PMI score of 46.7. That's down from 48.4 in Oct and it moves further beneath the boom-or-bust line of 50 that separates expansion from contraction. Total new business fell for the third month running, and at the strongest rate since May, with a number of firms citing reduced client numbers. In contrast, the amount of export business returned to growth in Nov. The composite PMI fell to 47.0 in Nov from 48.3 in Oct. (RTT)

Singapore: Retail sales growth slows further. Singapore's retail sales growth continued to ease in Oct. Retail sales rose 10.4% YoY in Oct, after an 11.3% growth in Sept. Excluding motor vehicles, retail sales advanced 14.3% yearly in Oct, after a 16.9% gain in the preceding month. Sales of food and alcohol grew the most, by 61.0%, in Oct from a year ago, followed by a 52.9% surge in sales of wearing apparel and footwear. On a monthly basis, retail sales rose a seasonally adjusted 0.1% in Oct. (RTT)

Markets

Gaming (Overweight): Only 8 4D special draws a year from 2023, says PM . Gaming companies will only be allowed to hold 8 special draws for 4D numbers annually, says Prime Minister Anwar Ibrahim (FMT)

Comments: Previously under the Pakatan Harapan administration, the number forecasting operators were only allowed 8 special draws but this was raised to 22 in 2021. Now, this will be reverted to 8 from next year onwards. In terms of earnings impact on Sports Toto (Outperform, TP: RM2.20), it is expected to be minimal as this special draw reduction only lowers our assumption of total draws by about 3% to 164 draws. Although this could still affect sentiment on NFO stocks, we maintain our Outperform call on Sports Toto given an improving earnings outlook and attractive dividend yield.

Telco (Neutral): Govt to review plans for 5G network. Prime Minister Anwar Ibrahim has instructed for a review of the country’s 5G rollout (The Edge)

Comments: In July 2021 under the previous administration, Ericsson was selected as the provider for Malaysia’s nationwide 5G network deployment while Digital Nasional Berhad (DNB) was established under the Ministry of Finance in March 2021 to oversee the rollout of the 5G infrastructure. The entire 10-year project is expected to cost RM16.5bn, of which RM12.5bn is allocated for network equipment and infrastructure with the remaining RM4bn for corporate costs. As five telcos have recently signed their respective wholesale agreements with DNB, this decision by the Prime Minister may result in disruption to 5G rollout. Thus far, only Maxis has yet to sign any access agreement with DNB.

Genting Malaysia (Outperform, TP: RM3.50): Invests another USD100m in Empire Resorts. Genting Malaysia said it is investing another USD100m (RM438.5m) to acquire convertible preferred stock in Empire Resorts Inc. (The Edge)

Comments: This would raise Genting Malaysia’s (GENM) total investment in the New York-based gaming company to USD624.4m. The rationale for the investment was to capitalise on Empire Resorts’ improving performance since its privatisation in 2019, where it has achieved positive EBITDA of USD31.8m for 9MFY22. Generally, we do not view this investment positively as we believe Empire Resorts remains loss-making at the bottomline. Also, this is seen as related party transaction as GENM is acquiring convertible preferred stock from Kien Huat Realty III, an entity controlled by the Lim family. GENM currently owns 49% stake in Empire Resorts with the remaining 51% held by Kien Huat Realty III.

Apex Equity: (Neutral, TP: RM1.03): Wants judicial review against SC for imposing additional conditions . Apex Equity Holdings’ second largest shareholder, ACE Group, and its subsidiary Apex Securities are seeking leave from the High Court to commence judicial review proceedings against the SC for imposing "additional conditions" in respect of Apex's CMSL. (The Edge)

Comments: This follows the Securities Commission’s demand for a declaration that Apex Securities had contravened the Securities Laws as ACE Holdings (ACE) had taken control of Apex Securities when ACE is not deemed to be a fit and proper person. This is not expected to have any material financial impact on Apex Equity but the long-drawn issue between its shareholder and the regulator may drag on and is not likely to resolve anytime soon. Maintain Neutral on Apex Equity.

Market Update

The FBM KLCI might open lower today as US stocks fell and bond yields surged after data showed the vast American services sector was still growing, even though the Federal Reserve has been trying to cool the world’s biggest economy with aggressive interest rate rises. Wall Street’s benchmark S&P 500 index fell 1.8% and the tech-heavy Nasdaq Composite lost 1.9% in the session. Both indices had their largest daily declines since November 9, the day after the US midterm elections. The declines followed the release on Monday morning of a report from the Institute for Supply Management showing its index tracking economic activity in the services sector expanded for the 30th month in a row in November, rising to 56.5 from 54.4 in October. Economists polled by Reuters had expected the index to decline to 53.3. A number over 50 signals growth. The decline for US stocks partly reversed Wall Street’s steady march higher over the past fortnight on hopes that inflation may have peaked, which could prompt the Fed to this month slow its pace of rate rises. Across the Atlantic, Europe’s regional Stoxx 600 fell 0.4% after data out on Monday showed a 1.8 per cent decline in Eurozone retail turnover in October — the biggest monthly drop of the year. London’s FTSE 100 rose 0.2%.

Back home, Bursa Malaysia ended lower on Monday, with the key moving in a narrow range, while buying activities were seen mainly in energy, construction, and transportation stocks. At the closing bell, the benchmark FBM KLCI had dipped 10.24 points or 0.69% to 1,471.56, from last Friday's closing at 1,481.80. Reports that several cities across China had relaxed Covid-19 restrictions boosted equities in the region. Hong Kong’s Hang Seng index finished 4.5% higher. The index has risen more than 17% in the past month. China’s CSI 300 index added 2%. Top movers in the latter included China Railway Group and infrastructure group China Communications Construction, both of which gained more than 10%.

Source: PublicInvest Research - 6 Dec 2022