Economy

US: Job openings hit more than two-year low; labor market still tight. US job openings fell to the lowest level in more than two years in June, but remained at levels consistent with tight labor market conditions, which could spur the Fed to keep interest rates elevated for some time. Labor market resilience was underscored by the third straight monthly decline in layoffs as employers hoard workers after difficulties finding labor during the COVID-19 pandemic. There were 1.61 job openings for every unemployed person in June, up from 1.58 in May (Reuters)

US: Construction spending climbs slightly less than expected in June. After reporting a notable increase in US construction spending in the previous month, construction spending rose by slightly less than expected in the month of June. Construction spending climbed by 0.5% to an annual rate of USD1.938trn in June after jumping by 1.1% to a revised rate of USD1.930trn in May. (RTT)

US: Manufacturing index inches higher but still indicates contraction in July. US manufacturing activity contracted for the ninth consecutive month in July. Manufacturing PMI crept up to 46.4 in July from 46.0 in June, but a reading below 50 continues to indicate contraction. Economists had expected the index to inch up to 46.8. The uptick by the headline index came as the new orders index climbed to 47.3 in July from 45.6 in June, while the production index rose to 48.3 in July from 46.7 in June. (RTT)

EU: Eurozone manufacturing downturn worsens in July. Euro area manufacturing slowdown worsened in July amid steeper declines in output, new orders and purchases, signalling that the economy is heading into a recession. Official data showed that the unemployment rate remained unchanged at a record low in June despite the weak economic activity. PMI slid to 42.7 in July, as initially estimated, from 43.4 in June. (RTT)

UK: Manufacturing shrinks most in 7 months. The British manufacturing downturn deepened in July as output, new orders and employment all fell at faster rates amid market weakness, both domestically and internationally. PMI dropped to a seven-month low of 45.3 in July from 46.5 in May. The flash estimate was 45.0. Both output and new orders declined further in July, with all three broad product categories, covering consumer, intermediate, and investment goods, seeing falls in both variables. (RTT)

UK: Nationwide house prices decline most since 2009. UK house prices registered the biggest fall since mid-2009 as the rising interest rates stretched the housing affordability and damped demand. The house price index posted an annual fall of 3.8% in July, faster than June's 3.5% decrease. The 3.8% decline was the sharpest since July 2009 and also matched economists' expectations. House prices decreased 0.2% MoM, in contrast to the 0.1% rise in June. The price of a typical home was 4.5% below the Aug 2022 peak. (RTT)

Australia: Keeps key rate unchanged. Australia's central bank left its benchmark interest rate unchanged in order to assess the impact of the past tightening on the economic activity. The policy board of the RBA decided to hold the cash rate target unchanged at 4.10%. The bank was widely expected to hike the rate by a quarter point. (RTT)

Hong Kong: Retail sales growth accelerates in June. Hong Kong's retail sales value continued to expand sharply and at a quicker rate in June. The value of retail sales climbed 19.6% YoY in June, faster than the 18.5% gain in May. Meanwhile, online sales, which accounted for 6.7% of the total sales value in June, dropped 3.3% from last year versus a 3.7% fall in the previous month. (RTT)

New Zealand: Jobless rate climbs to 3.6% in Q2. The unemployment rate in New Zealand came in at a seasonally adjusted 4.6% in the Q2 2023. That missed forecasts for 3.5% and was up from 3.4% in the three months prior. The underutilization rate was 9.8% on quarter, up from 9.1%, while the employment rate was 69.8%, compared with 69.6% in Q1. (RTT)

Markets

Reservoir Link (Neutral, TP: RM0.39): Bags AWCA contract from Petronas Carigali. Reservoir Link Energy has secured an award from Petronas Carigali SB for the provision of annulus wash and cement assurance (AWCA) equipment and services for M1 and Anding fields. The company commenced the work on the effective date of the award which was July 11, and expected to complete it within 18 months. (The Edge)

Comment: Based on our checking, the estimated value of the contract is not significant relative to its existing orderbook and our FY24 revenue forecast. Although the contract awarded is positive to the company, we remain cautious on the execution as the Group has shifted its resources towards growing its renewable energy (RE) segment including solar, hydropower and water treatment. We expect the growing of its RE segment on a large scale while maintaining its oil and gas segment would be a challenge due to its tight liquidity situation. As such, our Neutral call is retained with TP RM0.39.

Kerjaya Prospek (Outperform, TP: RM1.70): Wins two contracts worth RM46 mil from E&O and Persada Mentari SB for development projects in Selangor and Penang. The first project is expected to be completed within 17 months from the scheduled date of commencement of Oct 1 whereas the second project is anticipated to be completed within 12 months from the commencement date of Sept 18. (The Edge)

Cypark (Neutral, TP: RM0.63): To partner Selangor FC's investment arm to explore renewable energy opportunities. Cypark Resources is planning to form an incorporated JV company with RGFC Ventures SB to explore opportunities relating to the development of RE power plants and initiatives for solar energy homes, particularly the Net-Energy-Metering programmes — including residential installations — in Selangor. The JV is envisioned to be a SPV with Cypark having an 80% interest, and RGFC 20%. (The Edge)

EP Manufacturing: Signs MOU to produce China's BAIC vehicles in Malaysia. EP Manufacturing has partnered with China based automobile group BAIC Motor Corporation Ltd to develop local production of BAIC branded vehicles in Malaysia. It has signed a MOU with BAIC to develop the BJ40P and X55II sport utility vehicles and right hand drive (RHD) electric vehicles to cater to Malaysia and other Southeast Asian RHD markets. (The Edge)

Salcon: Bags piping works construction contract worth RM20.7m from Jurutera MTC SB. The project comprises external main sewer reticulation works for a piece of land in Batu Kawan, Seberang Perai, Penang for Messrs Eco Horizon SB. The project is expected to be completed in 17 months from the date of possession with an expected completion date of Dec 31, 2024. (The Edge)

Opcom: To buy 49% stake in power transmission firm for up to RM98m in diversification move. Opcom Holdings has proposed to acquire 5.4m shares, representing 49% equity interest, in power transmission company Transgrid Ventures SB for up to RM98m. The transaction will be satisfied via a combination of cash and issuance of new shares in Opcom. The proposed acquisition will enable Opcom to diversify into the power generation and transmission businesses. (The Edge)

Market Update

The US markets were lower as investors navigated a raft of corporate earnings reports and assessed a fresh batch of economic data. The S&P 500 lost 0.3% while the Nasdaq Composite dropped 0.43%. The Dow Jones Industrial Average added 71.15 points or 0.2%. Earlier in the session, the Dow touched its highest level since February 2022. Pharmaceutical giant Merck pulled back 1.3% even after reporting a smaller-than-expected loss and revenue that exceeded expectations. Caterpillar posted strong results, boosting shares 8.9%. Pfizer fell 1.2% after posting mixed results due to plummeting Covid product sales. European stocks fell on Tuesday as shrinking factory activity in the euro zone, China and the United States underscored growing risks to the global economy from rising interest rates. The Pan-European STOXX 600 index closed down 0.9%, in its biggest one-day percentage loss in nearly a month while the German’s DAX and France’s CAC were down 1.3% and 1.2% respectively. The UK’s FTSE 100 dipped 0.4%. Asia-Pacific markets finished mixed as China’s factory activity fell into contraction territory for the first time since April, according to the Caixin survey compiled by S&P Global. The Hang Seng and Jakarta Composite dropped 0.3% and 0.7% respectively but South Korean KOSPI up 1.3%. Meanwhile, Singapore’s Straits Times was flat.

Back home, FBM KLCI was 0.6% lower to close at 1,451.24. Pharmaniaga is appealing against Bursa Securities' decision to reject the company's plan to undertake a second private placement on a stand-alone basis. Pharmaniaga had proposed to undertake the second private placement two weeks ago to the Armed Forces Fund Board (LTAT) to raise gross proceeds of up to RM50m. The proposal comes after Pharmaniaga had previously undertaken a RM45.9m private placement which was completed on July 24.

Source: PublicInvest Research - 2 Aug 2023