MO R N I N G C O F F E E Friday, April 13, 2012

U.S. and European market roundup

US stocks rebounded after an encouraging start to earnings seasons. Equities cut gains late in the session after the Federal Reserve said rising energy costs were a concern for economic growth. Sectors linked with economic growth led theway higher as their recent beaten-down prices made them attractive to bargain hunters. (Reuter)

European stocks posted modest gains on Wednesday, clawing back some of the steep losses seen in the previous session, boosted by beaten-down miners and banking stocks. Also helping sentiment surrounding the secotr, HSBC upgraded its recommendation on European banks to 'overweight' from 'neutral'. (Reuter)

Macro News

The World Bank said Malaysia's highly open economy is expected to see an uneven recovery this year due to ongoing risks from the US and Europe. Overal GDP growth in Malaysia is likely to come at 4.6% in 2012, assuming global recovery continues, 5.1% in 2013. The new GDP growth forecasts are lower than the 4.9% forecast previously mainly due to a revision of domestic demand in light of the somewhat stronger headwinds expected to affect the domestic economy especially consumption and higher base from the strong performance in 2011. Domestics demand is expected to continue to support growth in 2012 and the outlook for fixed investment is somewhat more favorable than in 2011. But the contribution of domestic demand to growth is likely to be reduced as public consumption, while still set to remain robust in 2012, cannot be expected to continue growing at the 17% pace of 2011. (Business Times)

Corporate News

The local cement industry is in for a re-rating due to the increasing demand for the building material when the construction of mega projects gains momentum. Projects that are in the works include the MRT project, Iskandar development region, the Northern Corridor Economic Region, and also the East Coast Economic Region.The industry is dominated by Cement Industries of Malaysia Bhd (CIMA), Lafarge Malayan Cement Bhd, YTL Cement Bhd and Tasek Corp Bhd commanding 96% of the market share. Last year the industry players were only running at an installed capacity utilisation rate of 75% to 85%, and generally, cement cost makes up between 50% and 60% of concrete products. Combined, the cement industry is capable of churning out 24.7 million tonnes of cement annually, while producing another 18.3 million tonnes of clinker per year. The price of cement is between RM280 and RM290 per tonne, and the companies are still facing stiff price competition with each other. Supply and demand would likely dictate the price direction in the future. (StarBiz)

Shell Malaysia's upstream operating company Sarawak Shell Bhd and partner Petronas Carigali Sdn Bhd have signed two new exploration and production sharing contracts (PSCs) with Petroliam Nasional Bhd (Petronas). The contracts represent new Malaysian acreage for the multinational company. Shell said its minimum financial commitment for activities in two blocks, both offshore Sarawak, would be in the region of US$145m (RM444.98m) over the next four years. These new contracts underpin Shell's commitment to Malaysia where the company already invests an average of around US$1b (RM3.06b) annually. Shell is the operator and has an 85% interest in both contracts, with Carigali holding the remaining 15%. (StarBiz)

Tenaga Nasional Bhd (TNB) returned to the black in its 2Q ended February, helped by a RM2b compensation by the government and Petroliam Nasional Bhd. TNB's net profit more than tripled to RM2.8b from RM641.1m in the corresponding quarter, partly helped by lower coal prices, strong electricity demand growth of 4.1% this year and foreign translation gain. (Business Times)

Hibiscus Petroleum Bhd announced that Lime had secured a fourth concession in the Middle East, more
specifically in Ras Al Khaimah (RAK). The award of this fourth concession to Lime represents the final condition precedent as set out in the share-subscription agreement and share-purchase agreement between Hibiscus and Lime. Hibiscus is not required to pay anything more for these concessions, as under its earlier agreement with Lime, any future acquisitions will only be paid by Lime. On the RAK onshore concessions, an exploration and production sharing agreement was signed between Baqal Petroleum Ltd, a wholly-owned subsidiary of Lime, and the government of Ras Al Khaimah which allows for the rights to explore and produce hydrocarbons from the designated area. The initial term of the contract is 18 months, while the second term is two years. Upon a declaration of commerciality, the term will be 20 years with rights to request for renewal for an additional five years. (Starbiz)

Malayan United Industries Bhd (MUI) has proposed to sell the insurance assets and liabilities of MUI Continental Insurance Bhd (MCI) to Tokio Marine Insurans (M) Bhd for a premium of RM180.23m. MCI is a 52.21% owned subsidiary of Novimax (M) Sdn Bhd, which is a wholly-owned subsidiary of MUI. The value of the insurance assets to be transferred to Tokio Marine shall be equal to the value of the insurance liabilities assumed by Tokio Marine as at the transfer date, to be determined. This is not the first time that MUI has put MCI up for sale. Early last year, MUI had started negotiations to sell MCI to United States-based Liberty International Holdings Inc. However, in June 2011, MUI told Bursa Malaysia that it had stopped negotiations with Liberty International after both parties failed to agree on certain terms. The sale of an insurance company tended to present its own complexities, as common yardsticks such as net asset value or price earnings ratio were not the best tools to value the company's intrinsic value.Many proposed acquisitions in the insurance industry have fallen through as parties failed to agree on pricing. (Starbiz)

AMG Insurances Bhd has acquired Kurnia Insurans (M) Bhd for RM1.5b cash, making it the country's number one general and motor insurance firm. AMMB and AMG chairman said the acquision complemented AmBank Group's medium term aspiration and strategic priorities of growing income from profitable segments. Post acquisition, both the AmInsurance and Kurnia brands will continue to run as they are and it is very much business as usual. (Business Times)

Kejuruteraan Samudra Timer Bhd has secured a 3-year contract from Taliman Malaysia Ltd for the provision of tubular handling equipment and services. KSTB said that there was no indication on the value of the contract and it was subjective depending on the activities level by Talisman throughout the contract period. (The Edge Daily)

Source:Jupiter Securities Research 13 April 2012