HEADLINES

Economy

US: Business inventories rise marginally in June. US business inventories increased moderately in June as a surge in stocks at retailers was offset by mild gains at wholesalers. Inventories rose 0.3% after increasing 0.5% in May, the Commerce Department's Census Bureau said. The increase in inventories, a key component of GDP, was in line with economists' expectations. Inventories increased 2.1% YoY in June. Private inventory investment contributed 0.82ppt to the economy's 2.8% annualized growth pace in 2Q, after being a drag for two straight quarters. (Reuters)

US: Industrial production declines by most since Jan. US industrial output declined in July by the most since the start of the year on a pullback in factory production that included a Hurricane Beryl-related decrease in Gulf Coast refinery activity. The 0.6% decrease in production at factories, mines and utilities followed a downwardly revised 0.3% advance a month earlier, Fed data showed. Manufacturing production fell 0.3%, while mining and energy extraction was unchanged. Output at utilities decreased 3.7%. (Bloomberg)

US: Import prices edge up in July. US import prices barely rose in July, extending the flow of tame inflation readings that have bolstered financial market expectations for an interest rate cut next month. Import prices edged up 0.1% last month amid a modest rebound in the cost of energy products after being unchanged in June, the Labor Department's Bureau of Labor Statistics said. Economists had expected import prices, which exclude tariffs, to slip 0.1%. In the 12 months through July, import prices increased 1.6% after rising 1.5% in June. (Reuters)

EU: Disappointing productivity complicates ECB’s challenge. Euro-zone productivity barely improved in 2Q and again missed the ECB’s expectations, a blow for its efforts to bring inflation back to 2%. Labour productivity per person fell by 0.4%, according to new data published by the ECB. That follows a decrease of 0.5% in the first three months of 2024 and compares to a minus of only 0.3% envisaged in the ECB’s June staff projections. While a more productive labour force is essential for economic growth, it’s also a key plank in the ECB’s case for inflation returning to target. (Bloomberg)

UK: Economy grows strongly in 2Q but slowdown seen ahead. Britain's economy recorded a second quarter of strong growth as it recovered from last year's shallow recession but it lost momentum as it entered 2H of 2024, suggesting the BOE remains on course to cut interest rates again. GDP grew 0.6% in 2Q of 2024 after a 0.7% expansion in 1Q which was the fastest in more than two years, the Office for National Statistics said. (Reuters)

China: Factory output slows, dashing speedy recovery hopes. China's factory output slowed for a third straight month in July, showing the recovery in the world's second-largest economy was losing steam, although the battered consumer sector perked up slightly as stimulus targeting households took effect. A mixed batch of data pointed to a patchy start to the second half for the USD19trn economy and gave policymakers continued cause for concern following dismal export, prices and bank lending indicators earlier this month. Data from the National Bureau of Statistics showed industrial output grew 5.1% from a year earlier, slowing from the 5.3% pace in June and below analysts' forecasts for a 5.2% increase. (Reuters)

China: Home-price slump deepens to new 9-year low despite stimulus. China's new home prices fell at their fastest pace in nine years in July, as a slew of support policies failed to stabilise prices and restore confidence in the struggling property sector. The prolonged housing market slump has weighed heavily on the world's second-largest economy and its consumers, with analysts saying Beijing's 5% GDP target for 2024 may be too ambitious even as other economic gauges have steadied. New home prices fell 4.9% from a year earlier, the sharpest drop since June 2015 and deeper than a 4.5% slide in June. (Reuters)

Japan: Industrial production falls more than estimated. Japan's industrial production declined at the steepest pace in five months, more than initially estimated in June, final data from the Ministry of Economy, Trade, and Industry showed. Industrial production declined 4.2% on a monthly basis, reversing a 3.6% increase in May. In the flash report, the rate of fall was 3.6%. Data showed that shipments fell 4.7% from the previous month, and inventories dropped 0.7%. On the other hand, the inventory ratio showed an increase of 1.7%. (RTT)

Japan: Economy rebounds 0.8% in 2Q. Japan's economy expanded more-than-expected in 2Q on the back of strong consumption and investments, preliminary data released by the Cabinet Office revealed. GDP grew 0.8% sequentially, reversing a 0.6% fall in 1Q. Economists had forecast a quarterly growth rate of 0.5%. On an annualized basis, economic growth came in at 3.1% in 2Q, faster than the forecast of 2.1%. On the expenditure side, private consumption gained 1.0% from the prior quarter, reversing a 0.6% drop 1Q. Government consumption increased slightly by 0.1%. Gross fixed capital formation grew 1.7%, in contrast to the 0.9% decline seen in the March quarter. Both exports and imports climbed by 1.4% and 1.7%, respectively. (RTT)

Australia: Job gains beat expectations. Australia’s jobs growth surpassed all expectations in July while a swelling labour force pushed unemployment up slightly, underscoring the resilience of the labour market to elevated interest rates. Employment jumped by 58,200 versus a forecast 20,000 gain, government data Showed. Unemployment still edged up to 4.2% as the participation rate surged to a record high 67.1%. The AUD and yield on policy sensitive three-year bonds erased an earlier decline as traders trimmed expectations of Reserve Bank rate cuts. Money markets now see the start of the RBA’s easing cycle in December. (Bloomberg)

New Zealand: RBNZ aims to lower cash rate at measured pace, governor says. New Zealand’s central bank intends to reduce interest rates toward a more neutral setting at a measured pace, now that it has begun its easing cycle, Reserve Bank Governor Adrian Orr said. The RBNZ cut the Official Cash Rate by a quarterpercentage point to 5.3% yesterday and forecast it would decline to 3% by mid-2027. Orr said policymakers estimate that’s around the level of the neutral rate. (Bloomberg)

Markets

IJM (Outperform, TP: RM4.20): Aborts deal to buy 44.85% stake in Pestech; KLIA aerotrain JV still on. IJM Corp proposed acquisition of a 44.83% stake in Pestech International in a RM124m, or 15.5 sen per share, has fallen through. Pestech announced that the subscription agreement, which would have made IJM its largest shareholder, has been mutually terminated due to non-fulfillment of the conditions precedent outlined in the agreement. "In light of this, the board has decided to abort the proposals," said Pestech. (The Edge)

Comments: It was reported that IJM and Pestech decided to mutually terminate the subscription agreement due to the nonfulfillment of the conditions precedent pursuant to the subscription agreement. We are neutral on this development as the earnings impact is expected to be muted and it does not affect the current JV with IJM Construction SB in relation the automated people mover project at Kuala Lumpur International Airport (KLIA). Maintain Outperform on IJM.

Sapura Resources: MD steps aside from Aviation business amid conflict of interest concerns. Sapura Resources’ MD, Datuk Shahriman Shamsudin, has been directed to abstain from managing the group’s aviation business to avoid a conflict of interest. This decision follows a New Straits Times report revealing that Shahriman is both a shareholder and executive director of Explorer Group SB, which also operates in the aviation sector, including MRO services. (The Malaysian Reserve)

Duopharma Biotech: Expands market reach and doubles dividends. Duopharma Biotech's growth strategy will be anchored by its market expansion plans including widening the presence and enhance the value of its halal-certified healthcare solutions on the international markets. The pharma company expects to continue facing persistent challenges such as high electricity tariffs, elevated interest rates, and inflationary pressures; all of which is anticipated to exert pressure on manufacturing margins and overall profitability. (The Star)

Boustead Heavy Industries Corp: Bags RM378m helicopter contract from Mindef. Boustead Heavy Industries Corp's (BHIC) subsidiary BHIC AeroServices SB has received a five-year helicopter services contract worth RM378m from the Ministry of Defence (MinDef). BHICAS will provide a range of services via inservice support (ISS) to the Royal Malaysian Air Force (RMAF) EC725 helicopter. (Business Times)

Keyfield International: 2Q net profit surges 132% to RM70m. Keyfield International’s net profit for the 2Q 2024 ended 30 June 2024 surged 31.8% to RM70.0m from RM30.2m a year ago,driven by revenue growth contributed by its own vessels and thirdparty vessel segments. Revenue for the quarter under review jumped 86.7% to RM199.0m from RM106.6m previously. (Bernama)

Samchem: 2Q net profit down 6%, declares 0.5 sen dividend. Samchem Holdings saw net profit fall 6.3% to RM5.1m in the second quarter ended 30 June, 2024 (2QFY2024) from RM5.4m a year ago, mainly due to lower gross profit margins. This resulted in a lower earnings per share of 0.93 sen for 2QFY2024 from 0.99 sen for 2QFY2023. (The Edge)

MARKET UPDATE

The FBM KLCI might open higher today as Wall Street rallied to one of its best days of the year Thursday after data showed the US economy is holding up better than expected, with particular credit going to the country’s shoppers. The S&P 500 jumped 1.6% for its fourth-best day of the year and its sixth straight gain as the US stock market rights itself following a scary few weeks. It’s back to within 2.2% of its all-time high set last month after briefly falling close to 10% below it. The Dow Jones Industrial Average rose 554 points, or 1.4%, while the Nasdaq composite burst 2.3% higher as Nvidia and other Big Tech stocks recovered more of their stumbles from the last month. In stock markets elsewhere, indices also rose in much of Asia and Europe. Japan’s Nikkei 225 rose 0.8% after data showed its economy returned to growth during the spring. The UK economy also grew during the latest quarter, a welcome signal following a rough run, and the FTSE 100 rose 0.8% in London.

Back home, Bursa Malaysia recouped earlier losses to end flattish today to remain in consolidation mode, due to cautious trading ahead of the earnings season, with profit-taking seen in property stocks following their recent rally. At the closing bell, the FBM KLCI was 0.04% or 0.59 of-a-point higher to 1,612.94 from Wednesday’s close of 1,612.35.

Source: PublicInvest Research - 16 Aug 2024