Economy

US: Government shutdown would delay release of key economic data. The publication of major US economic data, including employment and inflation reports of critical importance to policymakers and investors, will be suspended indefinitely should the federal government shut down at the end of this week because of lack of funding, a government official said. The suspension of the reports would occur across all government agencies such as the Labor Department's Bureau of Labor Statistics (BLS) and the Commerce Department's Census Bureau and Bureau of Economic Analysis (BEA), and leave policymakers at the Federal Reserve, investors, businesses and ordinary Americans in the dark as they make key decisions. (Reuters)

US: Moody's warns US government shutdown would be 'credit negative'. A US government shutdown would have negative implications for its credit assessment as it would highlight the weakness of U.S. institutional and governance strength compared to other top-rated governments, Moody's said. However, the economic impact would likely be short-lived. US government services would be disrupted and hundreds of thousands of federal workers furloughed without pay if Congress fails to provide funding for the fiscal year starting Oct. 1. (Reuters)

EU: Energy imports fall in Q2 as Russian supplies cut. EU energy imports continued their downward trend in the second quarter as members further reduced their reliance on Russian supplies, data from EU statistics agency Eurostat. After a strong increase between 2021 and 2022, EU imports declined by 39.4% in value and 11.3% in volume in the second quarter of 2023 on a yearly basis. That followed plunges of 26.5% and 6.1% respectively in the first quarter. Russia, the top supplier of petroleum oils to the EU with a market share of 15.9% in the second quarter of 2022, saw that share decline to just 2.7% in the second quarter of this year, making it only the twelfth biggest supplier, Eurostat said. Norway, Kazakhstan, the United States and Saudi Arabia saw their market shares increase over the same period, it added. (Reuters)

EU: German business sentiment worsens in Sep. German business morale deteriorated slightly in September, falling for the fifth month in a row and underlining recession fears in the euro zone's largest economy. The Ifo institute said its business climate index stood at 85.7, a decline from a revised Aug figure of 85.8 but above the 85.2 forecast by analysts in a Reuters poll. "The German economy is treading water," Ifo president Clemens Fuest said. The institute's head of surveys, Klaus Wohlrabe, said a third-quarter contraction was likely, following stagnation in the second quarter. The German economy is seen at risk of sliding into its second recession in a year after shrinking in the last quarter of 2022 and the first quarter of 2023. (Reuters)

Japan: BOJ chief warns of highly uncertain wage, price outlook. BoJ Governor Kazuo Ueda said there was "very high uncertainty" over whether companies would continue raising prices and wages, stressing anew the bank's resolve to maintain ultra loose monetary policy. He also offered a cautious take on the overseas economic outlook, warning of the fallout from aggressive US interest rate hikes and sluggish growth in the Chinese economy. The key to the outlook for monetary policy is whether strong wage growth and consumption, rather than cost pressures from rising import costs, become the key driver of inflation, Ueda said. "We're seeing some signs of change in corporate wage- and price-setting behaviour. But there is very high uncertainty on whether these changes will broaden," Ueda told. Under its yield curve control (YCC) policy, the BOJ guides short-term interest rates at -0.1% and caps the 10-year government bond yield around zero. In a news conference after the meeting, Ueda said the BOJ could tweak YCC when the stable, sustained achievement of its 2% inflation target comes into sight. (Reuters)

India: Considering USD7.2bn housing loan interest subsidy scheme. India is considering spending 600bn rupees (USD7.2bn) to provide subsidised loans for small urban housing over the next five years, two government sources told Reuters. Banks are likely to roll out the scheme in a couple of months, ahead of key state elections later this year and general elections due in mid-2024. Last month, the South Asian country cut cooking gas prices for households by about 18% to rein in inflation ahead of elections. Indian Prime Minister Narendra Modi announced the plan in a speech in August to mark the country's Independence Day, but its details have not been previously reported. The scheme will offer an annual interest subsidy of between 3-6.5% on up to 0.9m rupees of the loan amount. Housing loans below five million rupees availed for a tenure of 20 years will be eligible for the proposed scheme, the sources said. (Reuters)

India: To cut floor price for basmati rice exports. India will cut the floor price for basmati rice exports in the coming days, sources familiar with the matter said, after millers and traders complained about a sharp drop in overseas sales of the premium aromatic grain. India will lower the basmati floor price to USD850 a metric ton, down from USD1,200 a ton, to help millers and traders ship out the rice grade, said the sources, who didn't wish to be identified as they are not authorised to talk to media. Last month, India fixed the floor price, or the minimum export price (MEP), for basmati rice shipments at USD1,200 a metric ton. Authorities said the MEP was imposed to help New Delhi ensure that non-basmati rice was not exported as basmati rice. (Reuters)

Markets

Bumi Armada (Outperform, TP: RM0.65): Unit signs production sharing contract for exploration in Kalimantan, Indonesia . Bumi Armada announced that its wholly owned subsidiary Armada Akia BV has signed a production sharing contract (PSC) with the Ministry of Energy and Mineral Resources of Indonesia for exploration in the Tarakan Basin of the North Kalimantan province of Indonesia (Akia PSC). It said co-bidder for the project, Pexco Tarakan NV, has also entered into the exploration agreement. According to the group, the production sharing contract covers an area of 8,394 square kilometres and contains the Aster and Tulip oil and gas discoveries. “The Tulip discovery has an estimated recoverable resource of 860 BCF (billion cubic feet) of gas and 60 MMboe (million barrels of oil equivalent) of oil and condensate. Plans are to acquire new 3D seismic over the Tulip discovery to evaluate the potential for a fast track development. (The Edge)

Comment : Bumi Armada as Operator will have 51% participating interest in the PSC, while the remaining 49% will be owned by Pexco. There is no financial commitment at this juncture until the Group acquire new 3D seismic to determine the way moving forward such as size as FPSO and FLNG or pipeline for the development. Nevertheless, the PSC is expected to capitalize on the Group expertise to operate FPSO with Tulip’s water depth is 800m. We make no changes to our numbers. Maintain Outperform with TP RM0.65.

Ho Hup: Proposes 10% private placement to raise RM12.4m to pay sub-contractors, repay borrowings . Ho Hup Construction Co plans to undertake a private placement exercise of 10% of its share base to raise RM12.4m, most of which is to be set aside to pay its sub-contractors. The construction outfit said the private placement exercise entails the issuance of up to 49.5m shares — 10% of its share base of 494.9m shares — to independent investors to be identified later, at an issue price to be fixed later. (The Edge)

Senheng: Acquires central distribution centre in Klang, Selangor for RM75.8m cash . Senheng New Retail has proposed to acquire land together with the buildings erected, which is currently being used as a central distribution centre (CDC) for RM75.8m cash. Senheng entered into a sale and purchase agreement with SDM Assets III SB for the proposed acquisition. (StarBiz)

Bina Darulaman: To jointly pursue Solar opportunities in Malaysia. Bina Darulaman BDB Energy SB has signed a MOU with Pumar Solar Power SB to jointly pursue solar opportunities in Malaysia. Bina Darulaman said the partnership will look for opportunities in Kedah and other states in Malaysia. (StarBiz)

SAM Engineering: Makes cash call to fund RM203m acquisition of aircraft parts maker from major shareholder . SAM Engineering & Equipment (M) is acquiring aircraft structure parts and precision engineering components manufacturer Aviatron (M) SB for USD43.4m (approximately RM203.2m), cash. The acquisition of Aviatron — the manufacturer of nacelle beams for Boeing and Airbus — is a related party transaction (RPT) as SAM Engineering is buying the stake from its major shareholder Singapore Aerospace Manufacturing Pte Ltd (SAMPL), which controls 62.49% of SAM Engineering. (The Edge)

Market Update

The FBM KLCI might open higher today after Wall Street’s benchmark S&P 500 closed 0.4% higher, led by the energy and materials sectors, and the tech-heavy Nasdaq Composite advanced almost 0.5%. In Europe, the region-wide Stoxx Europe 600 fell 0.6% and Germany’s Dax lost 1%. The downturn spread from China earlier on Monday, where declines in the once dominant property sector dragged Hong Kong’s Hang Seng down 1.8% and the CSI 300 down 0.7%. Asian markets were shaken by news that Chinese property giant Evergrande could not issue new debt owing to an investigation into its principal subsidiary, Hengda Real Estate Group. Its shares dropped more than a fifth and came two days after it warned it was cancelling some creditor meetings to reassess terms for its restructuring.

Back home, Bursa Malaysia retreated from its gains last week to close lower on Monday, due to profit-taking activities amidst mixed performance by regional markets. At the closing bell, the FBM KLCI fell 6.78 points to 1,443.45 from Friday’s close of 1,450.23.

Source: PublicInvest Research - 26 Sept 2023