Market Thoughts

US stocks quickly recovered to finish near session highs Tuesday after taking a sharp nosedive in midday trading, following a false Twitter post of two explosions in the White House. European shares closed sharply higher on Tuesday after a positive Spanish bond auction and better-than-expected French manufacturing data buoyed investor sentiment.

On the local market, the FBM KLCI fell 6.29 points to 1700.39 points. The index came off its historical high and we expect it to continue hovering below its resistance of 1717 points. The local market could be positive today following the bullish performance in US markets.

Stocks to watch are: BAT, Public Bank, and Digi following they announced better quarterly results; Coastal Contracts Bhd as it has secured contracts for the sale of nine offshore vessels worth about RM434 million; Kek Seng (Malaysia) Bhd as it has proposed a final dividend of 6% less 25% tax; UMW Holdings following its unit has received a contract extension from Petronas Carigali Sdn Bhd worth US$130mil.

Malaysia News & Highlights

Genting-Alliance JV plans US$500mil initial public offering in Manila

A joint venture between casino operator Genting Hong Kong Ltd and Philippine conglomerate Alliance Global Group Inc hired five banks for an up-to-US$500mil initial public offering in Manila, IFR reported yesterday, citing sources with direct knowledge of the deal. Travellers International Hotel Group, as the Genting-Alliance venture is called, plans to go public early in the third quarter, added IFR, a Thomson Reuters publication. Alliance said in a securities filing that Travellers International is exploring different ways to finance its projects, including debt and equity, without disclosing details of its plans. (Source: The Star)

DiGi sets up business trust, pays 90% of net profit as dividend

DiGi.Com Bhd, which recorded a net profit of RM328.6mil for the first quarter ended March 31, has confirmed it is currently working on setting up a business trust. “We are working on it (business trust) now and it has not been concluded yet. It is a new framework and it will be the first business trust in Malaysia, so we are evaluating it,” DiGi chief executive officer Henrik Clausen (pic) told StarBiz yesterday. Asked if DiGi would set up its business trust this year, Clausen said the trust was a new concept and DiGi was working on it without committing to a timeline. (Source: The Star)

Shah Alam LRT link in pipeline

The government may build a third light rail transit (LRT) line from Kelana Jaya to Port Klang, believed to be costing RM5 billion to RM6 billion. Dubbed the Shah Alam LRT line, Syarikat Prasarana Negara Bhd (Prasarana) is expected to call for tenders for the project next year, after a proper due diligence to be undertaken by the Land Public Transport Commission (SPAD) is completed. Prasarana is a wholly-owned government company established by the Finance Ministry and the operator and asset owner of LRT lines. (Source: Business Times)

Perdana Petroleum buys two vessels for RM178.77mil

Perdana Petroleum Bhd is acquiring two vessels for a total of US$59mil (RM178.77mil) as part of its fleet expansion plan. In a filing with Bursa Malaysia, Perdana Petroleum said it had entered into memorandum of agreements with Nam Cheong International Ltd for the acquisition of two units of 100m accommodation/work vessel for US$29.5mil each. “The proposed acquisition is in line with the fleet expansion plan of Perdana Petroleum group in providing marine support services to the offshore oil and gas facilities,” it said. (Source: The Star)

UMW unit RM394mil contract extended

UMW Holdings Bhd's unit UMW JDC Drilling Sdn Bhd has received a contract extension from Petronas Carigali Sdn Bhd worth US$130mil (RM394mil). UMW JDC is a 85%-owned subsidiary of UMW Corp Sdn Bhd, which in turn is a wholly-owned subsidiary of UMW. UMW told Bursa Malaysia that the extension of the contract for the provision of the semi-submersible drilling rig “NAGA 1” for Petronas Carigali drilling programme. It explained the current contract is for five years and started on Nov 13, 2010 and ends on Nov 12, 2015. (Source: The Star)

Comment

As mentioned in the announcement, UMW’s “NAGA 1”, a semi-submersible managed to extend its current rig upgrading works for an additional 281 days when the initial contract ends on 12 November 2013, hence extending the final expiry date to 19 August 2016. This is to compensate for the rig upgrading works which were carried out from 13 April 2012 till 18 January 2013 which summed up to exactly 281 days. While right after the end of the extension, UMW NAGA 1 bagged another 2 more years contract extension with an estimated contract value of USD130mil(RM403mil).

We foresee these favorable news flow will further enhanced the group’s topline to additional RM21mil and RM131mil for FY2015F and FY2016F respectively. While we expect the pre-tax profit to be boosted by RM5.25mil and RM131mil for FY2015F and FY2016F individually, assuming PBT margin of 25%. However, we continue to maintain HOLD on UMW with unchanged target price of RM12.10 as this positive news will only have financial impact on FY2015F and FY2016F. While most of the positives have been priced in for the Group’s Oil & Gas segment for FY2013F and FY2014F. Nonetheless, we continue to like the stock due to its earning visibility beyond FY2016F which is a boon for the group.

Coastal bags RM434m deal

Coastal Contracts Bhd has secured contracts for the sale of nine offshore vessels worth about RM434 million, raising its total sales order to RM720 million. It is selling seven units of offshore support vessels and two units of oil barges. “Including the new contracts, Coastal has about RM720 million worth of vessels sales orders up to 2014,” it noted. (Source: Business Times)

SapuraKencana gets green light to acquire Seadrill rig business in RM8.63bil transaction

Shareholders have given the green light to SapuraKencana Petroleum Bhd to complete the proposed acquisition of Seadrill Ltd's Asian tender rig business, which will also see the placement of 587 million new SapuraKencana shares at an issue price of RM2.80 per share to partially fund the RM8.63bil transaction. Shareholders' show of hands at the oil and gas player's EGM yesterday marked the go-ahead of the transaction that allowed it to take over 18 tender rigs, including the full tender rig organisation, for an enterprise value of US$2.83bil (RM8.63bil) and also the RM1.64bil private placement. (Source: The Star)

Public Bank profit rises 4%

Public Bank Bhd wrapped up its first quarter with earnings of RM968.3mil, up 4.1% from RM930.18mil a year earlier, on better loan and fee-based income. Its revenue rose 8.9% to RM3.67bil from RM3.37bil, while earnings per share were marginally higher at 27.65 sen versus 26.56 sen previously. No dividends were declared for the quarter. The improved earnings were attributed to higher incomes from net interest and finance, net fee and commission, and investment, the bank said in the notes to its financial statement. (Source: The Star)

Keck Seng proposes final dividend of 6%

Palm oil producer Keck Seng (M) Bhd has proposed a final dividend of 6% less 25% tax in respect of the financial year ended Dec 31, 2012 subject to shareholder approval. For the financial year ended Dec 31, 2012, the company’s earnings per share stood at 23.44 sen against 20.73 sen a year earlier. (Source: The Star)

BAT Malaysia nets RM204.2m in Q1

British American Tobacco (Malaysia) Bhd (BAT Malaysia) posted a net profit of RM204.2 million in the first quarter ended March 31 2013, up from RM194.5 million a year ago. This was due to higher contract manufacturing volume for export and lower operating expen-ses, despite a declining legal domestic volume due to illegal cigarettes. BAT Malaysia yesterday noted that revenue rose 5.1 per cent to RM1.09 billion from RM1.04 billion a year ago. (Source: Business Times)

Foreign News

U.S. Stocks Rise as Travelers, Netflix Rally on Earnings

U.S. stocks rose, sending the Standard & Poor’s 500 Index higher for a third day, as earnings from Travelers Cos. to Netflix Inc. beat estimates and new-home sales rose in March. The S&P 500 rose 1 percent to 1,578.78 in New York. The Dow Jones Industrial Average added 152.29 points, or 1.1 percent, to 14,719.46. More than 6.4 billion shares traded hands on U.S. exchanges today, about 1.1 percent higher than the three-month average.

Sales of New Homes in U.S. Climb 1.5% to 417,000 Rate

Sales of new U.S. homes advanced in March as near record-low mortgage rates helped the industry complete the strongest quarter since 2008, putting the economy on firmer footing. Purchases of single-family properties climbed 1.5 percent last month to a 417,000 annual pace, Commerce Department figures showed today in Washington. The median estimate of 76 economists surveyed by Bloomberg called for March sales to rise to 416,000.

European Stocks Jump Most in Eight Months on Earnings

European stocks jumped the most in eight months as ARM Holdings Plc and Cie. Financiere Richemont SA reported results that topped estimates and speculation grew that the region’s central bank will cut interest rates. The Stoxx Europe 600 Index soared 2.4 percent to 292.63 at the close of trading, the biggest jump since Aug. 3.

Euro-Area April Manufacturing, Services Contract

Euro-area services and factory output shrank for a 15th month in April as the currency bloc struggled to emerge from a recession, adding to pressure on the European Central Bank to do more to boost growth. A composite index based on a survey of purchasing managers in both industries held at 46.5, London-based Markit Economics said. That’s in line with the median of 26 economists’ forecasts in a Bloomberg News survey. A reading below 50 indicates contraction. The euro area’s woes were compounded today by concern global growth may falter after a report showed Chinese manufacturing expanding at a slower pace this month.

Government Bonds Surge as Italian, Irish Yields Drop to Records

European government bonds rose, with Italy’s two-year yields falling to a record, as euro-area output contracted for a 15th month in April, boosting speculation the region’s central bank will lower interest rates. The yield on Italian 10-year government bonds fell below 4 percent for the first time in almost 2 1/2 years, while Spanish and Portuguese yields dropped to the least since 2010. Borrowing costs in France and Ireland declined to the lowest on record as a purchasing managers’ index showed German services and manufacturing unexpectedly shrank. Benchmark German 10-year bund yields slid to the lowest since July.

Commodities Fall as Chinese Manufacturing Expansion Slows

Commodities dropped, led by silver, copper and gasoline, after data showed manufacturing growth is expanding at a slower pace in China, the world’s biggest consumer of metals and energy. The Standard & Poor’s GSCI Spot Index of 24 raw materials dropped as much as 1.1 percent to 602.13. It traded at 608.49 at 11:59 a.m. in New York. The GSCI touched 596.36 on April 18, the lowest level since July 2. Silver tumbled as much as 3.3 percent today, copper fell 2.4 percent and West Texas Intermediate crude lost as much as 1.6 percent.

(Source: Bloomberg)