Sime Darby Divests China-based Water Management Business for RM275m

Sime Darby Bhd (Sime) announced that it is selling its China-based water management business, Weifang Sime Darby Water Management Co. Ltd to state-owned Shandong Water Environment Protection Group Co. Ltd for a total cash consideration of US$68m (RM275m). Weifang Water is the sole supplier of treated water in the Weifang Binhai EconomicTechnological Development Area (BEDA) in Shandong Province, China. Weifang Water owns and operates two water treatment plants with a total capacity of 140,000 cubic metres / day, a water reservoir with a capacity of 3.5m cubic metres and a 222km pipeline network covering two-thirds of the BEDA. The divestment is expected to be completed by 2H2018 and the proceeds will be used to pare down Sime’s borrowings and to fund its operations. Sime expects to recognise a one-off divestment gain of c.RM65m. (Source: Bursa Malaysia)

Comments: The divestment is in line with Sime’s strategy to focus on its core businesses (motor, industrial and healthcare).The water management business contributed RM23m (or 3%) to Sime’s FY17 PBIT of RM771m. Overall, we are positive on the divestment but its impact to Sime’s earnings and balance sheet is not material. Maintain our BUY rating on Sime with a sum-of-parts-derived TP of RM3.29. We remain positive of Sime’s outlook, in view of attractive BMW model pipeline, higher industrial sales on rising mining spend as well as steady performance from the healthcare segment.

UMW Enters JV With Komatsu to Expand Heavy Equipment Business

UMW Holdings Bhd (UMW) announced that its wholly owned subsidiary UMW Corporation Sdn Bhd (UMWC) has entered into a Transaction Agreement (TA) with Japan-based Komatsu Ltd for its heavy equipment business. Briefly, Komatsu is a Japanese multinational corporation that manufactures construction and mining equipment, utilities, forest machines and industrial machinery. Both parties previously inked a letter of intent in Aug 2017 to establish a strategic partnership in the heavy equipment. UMWC and Komatsu will hold 74% and 26% respectively of the Joint Venture Company. (Source: Company)

Comments: We view this strategic agreement positively as UMW is poised to benefit from a few fronts. Firstly, this agreement would allow UMW to strengthen its geographical footing and competitiveness in Malaysia, Brunei, Singapore, Myanmar and Papua New Guinea. Secondly, UMW will also benefit from the expansion of fresh equipment variants and improvement of value-added services from Komatsu. This news is not expected to contribute to UMW’s immediate earnings. As such, we maintain our HOLD call for the time-being with an unchanged sum-of-parts TP of RM5.90.

Maybank Cancels DRP on 4Q17’s Final Dividend of 32 Sen

Maybank’s Board of Directors has resolved not to proceed with the implementation of the 16th Dividend Reinvestment Plan (DRP) on 4Q17’s final dividend of 32 sen, subsequent to weakness in its share price. (Source: Bursa Malaysia)

Comments: Meanwhile, the cancellation of the 16th DRP will not have any material impact to the performance of the Group’s EPS or its capital structure. Maybank remains among the region’s best-capitalised banks with its CET1 ratio at 13.37% and total capital ratio of 18.12% (after final cash dividend) as at end March 2018, which is more than sufficient to support its growth and regulatory requirements. We maintain our BUY rating on Maybank, with our Price Target at RM12.00 based on a P/BV target of 1.74x on CY19E BVPS. In our view, should Maybank reverts to an all-cash dividend payment in future, its EPS and ROE will see some improvement and may potentially results in higher valuation.

Outside Malaysia

Stocks Gain as Investors Shrug Off Trade Concerns

US stocks reversed early losses to trade higher on light volume as investors looked past potentially rising global trade tensions to focus on tech strength. The S&P 500 index increased by 0.3% to 2,726.71. The Dow added 35.77 points (0.2%) to 24,307.18.

US June IHS Markit Manufacturing Up Over Preliminary Figure

The seasonally adjusted IHS Markit final US Manufacturing Purchasing Managers’ Index rose to 55.4 in June, up from the ‘flash’ figure of 54.6 released on June 22. “The PMI for June rounds off the best quarter for manufacturing for almost four years,” commented Chris Williamson, Chief Business Economist at IHS Markit. “The second quarter ended the strongest quarterly performance since the third quarter of 2014.”

Ross Says It’s a ‘little Premature’ to Discuss US WTO Exit

Commerce Secretary Wilbur Ross said it’s a “little premature” to discuss the US withdrawing from the World Trade Organization as the Trump administration continues to look at ways to improve the global trade body. The “WTO knows some reforms are needed. So I think there really is a need to update and synchronize its activities and we’ll see where that leads,” Ross said.

Italy Unemployment Rate Falls in Boost for Populist Leaders

Italy’s jobless rate fell to the lowest in almost six years, boosting the country’s month-old populist government. Unemployment dropped in May to 10.7% from a revised 11% the month before, national statistics office Istat said in a preliminary report. The rate was well below the 11.1% median of 10 estimates in a Bloomberg News survey.

UK Manufacturing Growth Holds Up in June After Subdued Quarter

UK manufacturing growth held steady in June, providing some modestly good news at the end of the worst quarter for the sector since the end of 2016. IHS Markit’s Purchasing Managers Index for the industry stood at 54.4 in June, up from a revised 54.3 in May and beating economists’ estimates for a drop. The average reading for the second quarter as a whole was 54.2.

Confidence at Big Japanese Manufacturers Slips From Recent High

Confidence among Japan’s large manufacturers cooled for a second quarter after reaching a 13-year high at the end of last year. While trade tensions are casting a shadow over companies globally, big producers in Japan cited a lack of workers and the rising cost of materials as key concerns. Sentiment index for large manufacturers fell to 21 from three months ago (forecast 22), according to the quarterly Tankan survey released by the Bank of Japan.

Singapore Home Prices Rise Strongly for Second Quarter

US manufacturing expanded more than forecast last month as a gauge of supplier-delivery times shot up amid robust orders and production, data from the Institute for Supply Management showed. Factory index climbed to 60.2 (est. 58.5), matching the second-highest since 2004, from 58.7; readings above 50 indicate expansion.

Oil Falls on Prospect of Supply Boost, But Market’s ‘nervous’

Crude declined after US President Donald Trump put pressure on Saudi Arabia to ramp up oil output, with traders worrying about how it could affect spare capacity ahead. Brent for September dropped US$1.93 to US$77.30 a barrel.

Source: Affin Hwang Research - 3 Jul 2018