Market Thoughts

US stocks finished near session highs Tuesday, recovering losses from their biggest one-day drop this year, boosted by a batch of upbeat earnings results and some better-than-expected economic reports. Similarly, European shares closed narrowly off their session lows as U.S. earnings season kicked into high gear following a slew of upbeat earnings reports. On the local market, the FBM KLCI climbed 2.76 points to 1700.53 points. Following the rebound in the US, we expect the FBM KLCI to be positive today. Market direction will continue to be influenced by corporate results announcement in the US.

Stocks on the investors’ radar screens today are: Ingress as it has received a take-over offer from the major shareholders to acquire all the shares at RM1.85/share; WCT following the group bagged RM169.3m construction job for the TRX project from 1MDB; and MMC & Gamuda as the JV has been ordered to pay Wayss & Freytag (M) Sdn Bhd over RM105.3m in arbitration sum.

Malaysia News & Highlights

MMC-Gamuda to pay RM105.3m The MMC Corp-Gamuda joint venture has been ordered to pay Wayss & Freytag (M) Sdn Bhd over RM105.3 million in arbitration sum. MMC, via its wholly-owned subsidiary, MMC Engineering Group Bhd (MMCEG), and Gamuda Bhd each have an equal stake in the joint venture. In a statement to Bursa Malaysia yesterday, MMC said the arbitration ruling is not expected to have any material impact on its earnings for the financial year ending December 31 2013. However, in its statement, Gamuda said it will have a RM77.8 million impact on its earnings for the year ending July 31 2013. (Source: Business Times)

Comment

The news comes as a negative surprise for us. We believe the arbitration is related to a sub-contract, dated April 16 2003, awarded by the joint venture to Wayss & Freytag to build the north tunnel drive of the Stormwater Management and Road Tunnel (the SMART) project. MMC said due to Wayss & Freytag's inordinate delay in the progress of its work, the joint venture had terminated the sub-contract on January 23 2006.

We thus impute the RM77.8m cost incurred into our FY2013F earnings, resulted in a 9% decline in Gamuda’s net earnings from RM610.2m to RM547.3m. However, our SOP derived fair value of RM4.47 remains unchanged, as we maintain our HOLD call to the stock. We do not foresee any immediate catalyst on the share price judging that: 1) the MRT2 will not be rolled out until 2013; 2) lackluster sales growth in property division especially in Vietnam market; and 3) the SPLASH deal unlikely to materialize prior to election in our point of view.

Petronas in advanced negotiations for RM3bil investment in Brazil

Brazilian billionaire Eike Batista is seeking to sell 40% of the Tubarao Martelo oil block in Brazil's Campos Basin for US$1bil (RM3.04bil) as soon as next month, a person with direct knowledge of the matter said. OGX Petroleo & Gas Participacoes SA, the oil producer controlled by Batista, is in advanced talks with Petroliam Nasional Bhd (Petronas), said the person, who requested anonymity because the negotiations were private. (Source: The Star)

WCT gets RM169mil 1MDB contract for earthworks-substructure works at Tun Razak Exchange

1Malaysia Development Bhd (1MDB) has awarded a contract worth RM169.26mil to WCT Bhd for earthworks and substructure works at the Tun Razak Exchange (TRX). State investment firm 1MDB said in a statement yesterday that its unit,1MDB Real Estate Sdn Bhd, had given WCT the letter of award for phase one of the development, the scope of which includes site clearance, earthworks and rock excavation, secant pile walls, grouting, piling and other structural and related works. (Source: The Star)

Rising rubber gloves and furniture exports to Latin America

Exports of rubber gloves and furniture are expected to be the main product beneficiaries of expanding trade relations between Malaysia and Latin America, said Malaysia External Trade Development Corp (Matrade) senior director of exporters development division Datuk Dzulkifli Mahmud. He said exports of rubber gloves in particular are pointing to further growth due to the rise of the middle class and emerging health threats with the latest being the H7N9 strain of the bird flu. (Source: The Star)

Ingress gets buyout offer at RM1.85 per share

Ingress Corp Bhd’s three major shareholders, who collectively own 29.81%, have made a conditional takeover for the shares that they do not own in the car parts maker at RM1.85 sen a share or RM109mil. The three shareholders are Ramdawi Sdn Bhd, executive vice chairman Datuk Rameli Musa and founder Datuk Dr Ab Wahab Ismail. The takeover offer at RM1.85 a share is 27 sen or 17% above Monday’s closing price of RM1.58 but a discount of 33% to its latest book value of RM2.77. (Source: The Star)

Ireka upbeat on breaching RM1b mark

Ireka Corp Bhd, which is beefing up its infrastructure arm, can expect the division's order book to breach RM1 billion mark soon. Ireka has bid for close to RM1.2 billion worth of projects, mainly those that suit the skills and expertise of subsidiary Ireka Engineering & Construction Sdn Bhd. Ireka Engineering now has an order book of about RM860 million, including RM640 million of outstanding work. Ireka Development Management Sdn Bhd president and chief executive officer Lai Voon Hon said it is eyeing design-and-build contracts as they provide better margins, and therefore boost Ireka Engineering's performance in particular. (Source: Business Times)

Willowglen unit wins RM12m deal

Willowglen MSC Bhd’s wholly-owned subsidiary, Willowglen Services Pte Ltd, has been awarded a RM12mil contract by Singapore Power Ltd for the supply and installation of an intruder detection system. In a filing with Bursa Malaysia yesterday, the company said the commencement date of the contract was on April 15 and that it would be completed by April 14, 2015. “The contract is expected to contribute to the group’s earnings and net assets per share for the financial years ending Dec 31, 2013 to 2015,” it added. (Source: The Star)

Foreign News

U.S. Stocks Rise as Gold Rebounds While Treasuries Drop

U.S. stocks rallied and Treasuries fell after housing starts and earnings from Coca-Cola Co. and Johnson & Johnson beat estimates, while gold rebounded from its biggest slump in three decades. European stocks fell while the yen and dollar weakened. The Standard & Poor’s 500 Index gained 1.4 percent at 4 p.m. in New York, posting its second-best gain of the year and rebounding from the biggest drop in five months. The Stoxx Europe 600 Index fell 0.8 percent. Japan’s currency dropped against all 16 major counterparts, while the dollar weakened against 14. Treasury 10-year note yields climbed four basis points to 1.72 percent, the first increase in four days.

European Stocks Slide as German Confidence Falls

European stocks fell for a third straight day as German investor confidence declined more than forecast and the International Monetary Fund cut its global growth outlook. The Stoxx Europe 600 Index sank 0.8 percent to 288.16 at the close of trading, extending the decline over the past three days to 2.3 percent. The benchmark gauge has still gained 3 percent this year as U.S. lawmakers agreed on a compromise budget and central banks maintained stimulus measures.

Emerging-Market Equities Rebound After Valuations Slump

Emerging-market stocks advanced, led by Brazilian and Indian equities, after valuations reached the lowest level versus developed markets since 2005 and falling energy prices boosted transportation companies. The MSCI Emerging Markets Index added 0.6 percent to 1,008.92 in New York, after slumping the most since July yesterday. The decline drove the index down to 1.5 times net assets, compared with 1.9 for the MSCI World Index, the biggest gap since August 2005, according to data compiled by Bloomberg. Brent crude dropped below $100 a barrel for the first time since July as West Texas Intermediate oil was little changed.

Yen, Dollar Slide Against Higher-Yielding Currencies; Euro Gains

The yen and dollar slid against currencies of commodity-exporting nations including New Zealand and South Africa as investors sought higher-yielding assets and gold and U.S. stocks gained. Japan’s currency dropped versus all of its 16 most-traded peers as investors bet a rally yesterday amid demand for a haven was excessive.

Gold Drop Splits Central Banks as Sri Lanka Sees Opportunity

The biggest drop in gold prices since 1983 has divided central banks on whether the metal is cheap enough to increase investment. Sri Lanka’s central bank governor said falling prices are an opportunity for nations to raise gold reserves and that the island will “favorably” examine buying more. The Bank of Korea said the plunge isn’t a “big concern” because holding the metal is part of a long-term strategy for diversifying currency reserves. Reserve Bank of Australia’s assistant governor said bullion has no “intrinsic value.” South Africa’s central bank governor won’t adjust its reserves policy.

(Source: Bloomberg)