Market Thoughts

US stocks finished near session lows in choppy trading Wednesday, with the Dow posting its first three-day losing streak this year, amid lingering worries of Fed tapering. Similarly, European shares closed lower, mirroring losses in U.S. markets, on continuing concerns about an imminent scaling back of ultra-loose monetary policies by central banks.

On the local market, the FBM KLCI fell 4.45 points to 1775.12 points after touching an intraday low of 1767 points. Following the bearish performance in the US and extended concerns of less stimulus, we expect the local market to be negative today with immediate support at 1765 points.

Stocks in action are: a) Genting group as it plans to spend RM3b for facelift of Gentng Highlands casino resort in order to double its future earnings; b) Sarawak Cable after the group bagged a RM33m project to establish transmission line in Miri; c) Hartalega following the group announcement of land acquisition in Sepang for its Next Generation Integrated Glove Manufacturing Complex (NGC) to boost production capacity by 28.5b pieces of nitrile gloves or 200% over eight years; and d) Instacom as the group proposed a bonus issue of one free warrant for every two shares.

Malaysia News & Highlights

RM3b facelift for Genting: Casino operator plans huge capex to double profit from highlands

In an attempt to double its profit, Genting Malaysia Bhd is planning a RM3 billion facelift for its 42-year-old hilltop Genting Highlands casino resort. The resort is facing increasing competition from newer casinos in Singapore and Macau. “The RM3 billion is just a ball-park figure. Plans are still being finalized but we want to share our thoughts with shareholders,” chairman Tan Sri Lim Kok Thay told The Edge Financial Daily on the sidelines of Genting Malaysia’s AGM yesterday. (Source: The Edge)

MBSB: RHB Islamic a takeover option

The possible merger between Malaysia Building Society Bhd (MBSB) and RHB Capital Bhd (RHBCap) took an interesting twist yesterday when MBSB's top official suggested that the non-bank lender could take over RHB Islamic Bank Bhd. MBSB president and chief executive officer Datuk Ahmad Zaini Othman said MBSB is capable of taking over RHB Islamic's RM4 billion assets as MBSB itself has more than RM30 billion in assets, a shareholders' fund of more than RM2 billion and a market capitalisation of RM5 billion on Bursa Malaysia. "People speculate that RHBCap will take over MBSB. What about MBSB taking over RHB Islamic? Don't overlook us. We are more than capable. As one of the options, we can take over RHB Islamic. (Source: Business Times)

AirAsia to sign US$1bil engine purchase in Paris

AirAsia is expected to sign a major deal for the purchase of about 60 engines worth over US$1bil at the Paris Air Show next week, sources said. AirAsia will sign the deal with CFM International, which is a 50:50 joint venture between General Electric Co (GE) and Snecma. The engine supplier is the same party for 80 engines the airline had bought last year for its A320 aircraft in a deal which was worth US$1.6bil. A maintenance, overhaul and repair contract is also likely to be signed for the 60-odd aircraft, according to the sources. With that order AirAsia has a record 475 narrow body aircraft on its order list with Airbus.The airline earlier said the extra aircraft will give it ample capacity to build on its market leadership and dominance especially in Malaysian and Thai markets. (Source: The Star)

UEM Land Holdings launches RM4bil new residential and commercial projects

UEM Land Holdings Bhd expects to launch new residential and commercial projects with a total gross development value of around RM4bil this year. Managing director and chief executive officer Datuk Wan Abdullah Wan Ibrahim said several of the projects were located within Puteri Harbour, Nusajaya, such as its new high-rise mixed development in Parcel CS1, an eco-friendly up-market residential development known as D'Estuary, and Emerald Bay Puteri Harbour, a joint-venture with Bandar Raya Developments Bhd. In addition, he said, the company was also looking to launch a high-rise mixed development in Mont' Kiara and a mid-market mixed residential development in Bangi. (Source: The Star)

BIMB Holdings Bhd may have to pay RM2.7bil for remaining 49% stake in Bank Islam

To own its unlisted banking unit Bank Islam Malaysia Bhd in its entirety, BIMB Holdings Bhd may have to fork out RM2.7bil for the remaining 49% stake it does not already own. According to Maybank Investment Bank Research, the price tag, based on a 1.8 times price-to-book value, may also lead to a rights issue. “Assuming a 60:40 debt and equity funding structure, we estimate a one-for-three rights issue by BIMB, at RM3.22 per share, which is a 20% discount to the current share price, and new debt of RM1.6bil,” analyst Desmond Ch'ng said. Ch'ng was positive on the move, seeing it as earnings and return-on-equity (RoE)-accretive. “Factoring in additional contributions from the additional 49% stake in Bank Islam net of funding cost at 5%, we expect this move to be earnings per share (EPS) and RoE-accretive enhancing BIMB's financial year 2014 (FY14) EPS by 17%, while raising the group's FY14 RoE to 14.7% from 14.1%.” (Source: The Star)

Hartalega invests RM2bil to boost capacity to 13 billion gloves a year

Hartalega Holdings Bhd plans to invest RM1.9bil for the development of its next-generation glove manufacturing complex (NGC) that will boost its production capacity to over 42 billion pieces from the current 13 billion pieces per annum. The NGC will be located at its newly-purchased land in Sepang. The first phase of the NGC from 2013 to 2017 would see Hartalega commissioning 42 production lines, with a total annual installed capacity of 16.5 billion pieces. The second phase from 2018 to 2021 will see an additional 30 production lines coming onstream, with a total annual installed capacity of 12 billion pieces. (Source: The Star)

UEM Sunrise plans overseas inroads

UEM Sunrise Bhd, formerly UEM Land Holdings Bhd, is making inroads into South Africa, Australia, India and Indonesia to drive its revenue and net profit. The group is also increasing its investment assets, which now contribute eight per cent to its earnings. For fiscal 2012, UEM Sunrise recorded revenue growth of 14 per pent to RM1.94 billion, while net profit increased by 49 per cent to RM448.4 million. The compound annual growth rate for the group's revenue and net profit has been around 40 per cent over the past five years. Sales have grown steadily by 77 per cent annually since 2008, led by developments in Nusajaya in Johor. (Source: Business Times)

Astro Q1 profit lower at RM114m

Astro Malaysia Holdings Bhd's net profit eased to RM113.81 million in the first three months of its financial year ending January 31 2014, from RM123.36 million a year ago. Group revenue, however, grew 14 per cent to RM1.1 billion from RM986.0 million previously. "Our net profit of RM114 million for the quarter was as planned," Astro chief executive officer Datuk Rohana Rozhan said. "We are off to a good start in this financial year where we continue to strongly execute on our key strategic imperatives."This quarter, we achieved a 14 per cent growth in revenue, underpinned by higher number of pay-TV and NJOI subscribers, increase in ARPU (average revenue per user) and growth in adex (advertising expenditure," she said in a statement yesterday. (Source: Business Times)

MAS plans to add A380s to assist in turnaround

MALAYSIAN Airline System Bhd (MAS) plans to add more Airbus A380 superjumbos to its fleet as modern, fuel-efficient aircraft will assist in a turnaround from two consecutive years of losses. The flag carrier, which has six A380s, may order "a few more" double-decker planes, group chief executive officer Ahmad Jauhari Yahya said in an interview here yesterday. MAS will arrive at a decision by the year-end, he said. Ahmad Jauhari needs new aircraft to cut fuel expenses, the airline's biggest cost at 37 per cent, end losses and take on competition from Singapore Airlines Ltd, which also boosted its A380 orders last year. (Source: Business Times)

MSM plans RM220m capacity expansion

MSM Malaysia Holdings Bhd, the country's largest sugar producer, will increase its annual refined sugar output by 36 per cent, or 400,000 tonnes, to 1.5 million tonnes by 2016. MSM is setting aside RM220 million from the RM413.8 million raised from its listing in 2011 for this internal expansion. The company has used RM130 million of the proceeds, out of which RM37 million was for capital expenditure and RM97 million for working capital. Chief executive officer Chua Say Sin said for this year alone, MSM has budgeted RM85 million for capacity and warehouse expansion. (Source: Business Times)

Nazir: 'Philippines deal not reached yet'

CIMB Group chief Datuk Seri Nazir Razak yesterday said the talks to buy a banking unit in the Philippines are still ongoing and denied that a deal was reached last Monday night. He said the media reports in the Philippines, which quoted San Miguel Corp president Ramon Ang, were incorrect. "The report said the deal has been concluded. To the best of my knowledge, that may be a misquotation. There is progress on the deal but it has not been concluded yet," he said. Nazir said while the deal is already in its final stage, "we are still in discussion, and God willing, (the outcome) will be a positive one". (Source: Business Times)

Hartalega buys 45ha Sepang land

Hartalega Holdings Bhd yesterday sealed a conditional sales and purchase agreement to buy 45ha of land in Sepang, Selangor, for RM96.9 million. The land will be acquired via its wholly-owned subsidiary, Hartalega NGC Sdn Bhd. Hartalega’s managing director Kuan Mun Leong said this will help the company realise its RM1.9 billion Next Generation Integrated Glove Manufacturing Complex (NGC). The NGC, when completed, will increase the group’s total installed production capacity to over 42 billion pieces of glove per year via an addition of 72 advanced production lines. (Source: Business Times)

Instacom plans 1-for-2 bonus issue

Instacom Group Bhd has proposed bonus issue of one free warrant for every two shares held in the company to its shareholders. RHB Investment Bank Bhd, on behalf of Instacom, said based on the existing paid-up share capital of RM70.2 million comprising 702.25 million Instacom shares, a total of 351.13 million warrants will be issued at an entitlement date to be determined. The final exercise price of the warrants will be fixed at a discount of not more than 15 per cent to the theoretical ex-all price, and the warrants will be issued at no cost to entitled shareholders of the company. (Source: Business Times)

Tanjung clarifies report, saying it’s looking at potential acquisitions

Tanjung Offshore Bhd has clarified that it is currently reviewing various business proposals for potential acquisitions, including of an oil and gas (O&G) drilling company as reported by StarBiz on Tuesday. The news report, quoting a source, had stated that the company was in discussions to acquire a controlling stake in a foreign O&G company that owns and manages several offshore oil rigs for a price tag of close to RM1bil. However, Tanjung Offshore, in its filing with the exchange, said it was only in preliminary discussions with the said drilling company on the potential acquisition. “We wish to inform that we have not appointed any advisers and have not commenced any financial and legal due diligence on the said company/assets. We will make the relevant announcements upon completion of the said due diligences in due course,” it said. (Source: The Star)

Sarawak Cable unit gets project

Sarawak Cable Bhd’s wholly-owned unit, Trenergy Infrastructure Sdn Bhd, has received a letter of acceptance from Sarawak Energy Bhd for the proposed Tudan-Miri Airport 132-kV transmission line project worth RM32.87mil. In a filing with Bursa Malaysia, Sarawak Cable said the project would start on June 17 and be completed within 15 months on Sept 16, 2014. It said the project was expected to contribute positively to the earnings and net assets of the company in financial years ending Dec 31, 2013 and Dec 31, 2014. (Source: Bernama)

Foreign News

Dow Posts First Three-Day Drop This Year on Stimulus Bets

U.S. stocks fell, with the Dow Jones Industrial Average posting its first three-day losing streak this year, as investors weighed prospects for economic growth and the pace of Federal Reserve stimulus measures. The Standard & Poor’s 500 Index fell 0.8 percent to 1,612.52 at 4 p.m. in New York. The gauge erased a 0.7 percent rally earlier today and recorded its biggest three-day decline since April 17. The Dow lost 126.79 points, or 0.8 percent, to 14,995.23. The index has slipped 1.7 percent in the past three days, its longest retreat since Dec. 28.

European Stocks Fall as Greek Wrangling Renews Concerns

European stocks declined as wrangling between Greek politicians following the shutdown of the state broadcaster overnight renewed concerns about the stability of the country’s government. The benchmark Stoxx Europe 600 Index fell 0.4 percent to 290.68 at the close of trading, erasing earlier gains of as much as 0.7 percent. The gauge has lost 6.4 percent since May 22 amid speculation the Federal Reserve will taper its bond-buying program that helped drive the measure to its highest level since June 2008.

Euro-Area Industrial Production Unexpectedly Gains on France

Euro-area industrial output unexpectedly increased in April, led by France, adding to signs the currency bloc’s economy is beginning to emerge from a record-long recession. Factory production in the 17-nation euro area rose 0.4 percent from March, when it increased a revised 0.9 percent, the European Union’s statistics office in Luxembourg said. The median forecast in a Bloomberg News survey of 36 economists was for stagnation. Production fell 0.6 percent from April 2012.

Greece First Developed Market Cut to Emerging at MSCI

Greece became the first developed nation to be cut to emerging-market status by MSCI Inc. after the local stock index plunged 83 percent since 2007. Greece failed to meet criteria regarding securities borrowing and lending facilities, short selling and transferability, said MSCI, whose equity indexes are tracked by investors with about $7 trillion in assets. Qatar and the United Arab Emirates were raised to emerging markets, while Morocco was cut to a frontier market. New York-based MSCI kept South Korea and Taiwan as emerging markets, and placed Chinese shares traded on local exchanges on review for inclusion in the emerging category, according to a statement yesterday.

Emerging-Market Bond Anxieties Surging by Most Since 2008

The biggest drop in perceived creditworthiness for emerging-market borrowers since the credit crisis is deepening as speculation intensifies that central banks will scale back record stimulus. Prices on the Markit CDX Emerging Markets index, a credit-default swaps benchmark for debtor nations from Latin America to the Middle East and Asia, have tumbled 4 cents in the two weeks through yesterday to 107 cents on the dollar. The decline is the biggest since the failure of Lehman Brothers Holdings Inc. reverberated across financial markets and caused the index to plunge 6.7 cents in the period ended Nov. 18, 2008.

Singapore Regulator Said to Plan Bank Reprimand on Rates

Singapore’s central bank plans to reprimand banks in the city-state as early as Friday following an 11-month review into how benchmark interest rates are set, five people with knowledge of the matter said. The Singapore Foreign Exchange Market Committee, which includes the Monetary Authority of Singapore and banks, plans to separately announce changes to the rate-setting process on the same day, two of the people said, asking not to be identified before the announcements are made.

(Source: Bloomberg)