Market Thoughts

US stocks finished mixed in volatile trading Friday, with major averages putting an end to two days of heavy losses triggered by Fed Chairman Ben Bernanke's comments that the central bank may scale back its asset purchases later this year. Still, stocks finished in the red for the week, logging their worst weekly drop since mid-April. Meanwhile, European shares rebounded before turning down and closing lower on Friday. This followed a heavy sell-off in the previous session after the U.S. Federal Reserve hinted it might scale back its asset purchases this year.

On the local market, the benchmark FBM KLCI closed 6.49 points lower at 1755.85 points after rebounding from an intraday low of 1738 points. We expect the index to remain volatile above the support level around 1740 points.

Stocks to watch are: a) Nadayu as the major shareholders plan to privatize the company at RM1.39per share; b) Tambun Indah after the group plans to acquire two companies from Nadayu for RM40.7m cash and issue 44m new shares to the latter resulting Nadayu emerges as a major shareholder with a 15% stake in the former; c) RHB Capital, according to Bloomberg, its major shareholder, EPF is considering the acquisition of the remaining shares it does not own in the financial services provider; and d) Sunway, MRCB, Scomi Engineering and IJM Corp as the media reported that there will be a monorail extension to Bandar Sunway which could see the project benefits those companies.

Malaysia News & Highlights

EPF wants to take RHB private

The Employees Provident Fund (EPF) is considering buying the 59% of RHB Capital Bhd that it does not already own and has hired Goldman Sachs to advise it on its options, according to people familiar with the matter. The fund wanted to privatise RHB to merge it with property financing firm Malaysia Building Society Bhd (MBSB), later relisting the merged group as part of a restructuring, the people said. The fund also owns nearly 60% of MBSB. (Source: The Star)

CIMB aborts plan to buy BoC stake

CIMB Group Holdings Bhd has aborted its proposed acquisition of San Miguel's 59.98 per cent stake in the Philippines' Bank of Commerce (BoC). In a filing to Bursa Malaysia yesterday, it said the discussions it held with San Miguel since the lapse of the sale and purchase agreements (SPAs) a few months ago had failed to reach an agreement on new terms. “As such, the parties will not proceed with the proposed acquisition,” it said. (Source: Business Times)

Bursa: Trades ‘valid and genuine’

The seemingly unusual market activity that saw sharp price gyrations in several stocks in the final 10 minutes of trading on Friday was valid and genuine, according to Bursa Malaysia. Six counters from mid-caps to big ones, namely, Hap Seng Plantations Holdings Bhd, Batu Kawan Bhd, TDM Bhd, CB Industrial Product Holding Bhd (CBIP), Coastal Contracts Bhd and Berjaya Sports Toto Bhd, hit limit-down, or a 30% plunge, with a combined trade of RM43.1mil in that short time window during pre-close. While the trading pattern may seem like an “error in trading” could have taken place, a Bursa Malaysia representative when contacted by StarBizWeek clarified: “With regards to the eight stocks which hit their limits-up (two) and down (six), Bursa Malaysia has investigated the matter and has confirmed with the broker that the basket order, which was from their institutional client, was valid and genuine.” (Source: The Star)

Nadayu to be taken private, its unit selling stakes in 2 developers

Nadayu Properties Bhd’s major shareholders have proposed to take the company private via a selective capital reduction (SCR) and repayment exercise. In an announcement to Bursa Malaysia, Nadayu said it had received a letter proposing the privatisation exercise from its major shareholders via ATIS IDR Ventures Sdn Bhd and Zhoujian Associates Sdn Bhd together with parties acting in concert. Under the proposed SCR, shareholders other than ATIS IDR Ventures, Zhoujian Associates and parties acting in concert will receive a capital repayment of RM93.124mil, or RM1.39 for each Nadayu share held. (Source: The Star)

MAHB wins services job for Doha airport

Malaysia Airports Holdings Bhd (MAHB) has received a letter of award from the New Doha International Airport (NDIA) Steering Committee to provide facility management services for airport operational facilities and ancillary building at the NDIA in Doha, Qatar. MAHB’s unit Malaysia Airports Consultancy Services Sdn Bhd (MACS) will undertake the 100.62 million Qatari riyal (RM83.28mil) project. The project is for a period of three years with an option to extend for a further three years at a price of 108.68 million Qatari riyal (RM89.97mil). (Source: The Star)

Malaysia AE triggers criteria for PN17

Bursa Malaysia Securities Bhd announced that Malaysia AE Models Holdings Bhd has triggered the criteria pursuant to Practice Note No. 17 (PN17) of the Main Market Listing Requirements. “Bursa would like to emphasise that it will continue to monitor the progress of the company in respect of its compliance with the Listing Requirements,” it added. (Source: The Star) Alam Maritim confident of double-digit rise in net profit Alam Maritim Resources Bhd is confident of a “double-digit” net profit growth in the current financial year to Dec 31 (FY13). The oil and gas offshore support vessel services company said that this would be driven by additional contracts from oil majors and ongoing job replenishment. (Source: The Star)

MAHB lodges 212 reports against the contractors of KLIA2

A total of 212 non-compliance reports (NCR) has been lodged by Malaysia Airports Holdings Bhd (MAHB) against the contractors of KLIA2 for unsatisfactory works that must to be rectified before the airport is handed over by April 30 next year or further penalties will be imposed against them. For now the main contractor, UEM-Bina Puri JV, has been slapped with a RM6mil monthly fine since MAHB had invoked the liquidated ascertained damages (LAD) clause. Assuming the JV company only hands over the airport on April 30, 2014 and not earlier, the total LAD it has to pay MAHB is RM63.42mil. That amount is for 318 days, beginning June 16 and the charge per day is RM199,445.40. (Source: The Star)

AirAsia X sets IPO price at RM1.25 per share

AirAsia X Bhd's initial public offering (IPO) price has been fixed at RM1.25 per share for both the retail and institutional tranches. This will raise total proceeds of RM987.7 million, including RM740.7 million that will directly go to AirAsia X. The rest of the proceeds will be pocketed by certain major AirAsia X shareholders. The company yesterday said based on the enlarged share capital, its market capitalisation at RM1.25 per share will be about RM3 billion. (Source: Business Times)

Crest Builder bids for jobs worth RM6b

Crest Builder Holdings Bhd has bid for infrastructure jobs worth RM6 billion this year, as the company eyes a slice of the country’s booming infrastructure industry. According to the 2012/2013 Economic Report, Malaysia has set aside RM47.8 billion for the infrastructure sector. “We have partnered local and foreign companies to bid for the jobs,” executive director Yong Shang Ming told Business Times. He said Crest Builder is interested in the development of the country’s water infrastructure, which can be defined as a stock of facilities and installations needed to develop and manage water resources. (Source: Business Times)

Monorail extension to Sunway proposed

The proposed extension of the KL Monorail towards Old Klang Road has sparked renewed interest. This time round, the plan is to extend it further to Bandar Sunway – a prospect that has attracted several listed companies as the monorail would cover some of the most densely populated areas in Kuala Lumpur and Petaling Jaya. According to sources, such a proposal was made a month ago by Malaysian Resources Corp Bhd (MRCB) to Syarikat Prasarana Negara Bhd. Other companies such as IJM Corp Bhd are also looking to submit proposals, they say. (Source: The Edge)

Foreign News

U.S. Stocks Advance Following Biggest Drop Since 2011

U.S. stocks advanced, rebounding following the Standard & Poor’s 500 Index’s biggest drop since November 2011 after Federal Reserve Chairman Ben S. Bernanke said the central bank may phase out stimulus. The S&P 500 rose 0.3 percent to 1,592.43 in New York at 4 p.m., after fluctuating between gains and losses during the day. The Dow Jones Industrial Average gained 41.08 points, or 0.3 percent, to 14,799.40. About 10.7 billion shares traded hands on U.S. exchanges, the highest since October 2011, as futures and options contracts expire today in a process known as quadruple witching that can lead to unpredictable price swings.

Treasury Yields Surge Most Since 2003 as Fed Previews Tapering

Treasury 10-year note yields climbed the most since the start of the Iraq war as investors fled U.S. debt after the Federal Reserve predicted economic growth will be strong enough to allow policy makers to stop buying bonds. Yields on the benchmark security for everything from mortgages to corporate loans climbed to the highest level in 22 months after Fed Chairman Ben S. Bernanke said policy makers may begin slowing bond purchases under quantitative easing this year and end them in mid-2014. U.S. growth may reach 3.5 percent next year, they said. Thirty-year bond yields rose the most in a week since 2009. The U.S. will sell $99 billion in notes next week.

European Stocks Post Biggest Weekly Drop in 13 Months

European stocks posted the biggest weekly slide in 13 months as Federal Reserve Chairman Ben S. Bernanke said the central bank may pare bond purchases, Greek wrangling threatened to fracture the government and China’s cash crunch worsened. The benchmark Stoxx Europe 600 Index plummeted 3.7 percent to 280.4 this week as all 19 industry groups dropped. The gauge has declined for five straight weeks, the longest streak of losses since June 2011. It has retreated 9.7 percent since May 22 after Bernanke said the Fed could start to reduce quantitative easing if the U.S. economy improves sustainably.

EU Leaders to Stave Off Market Turmoil After Bank Talks Fail

European Union leaders will this week attempt to stave off a resurgence of market tremors after talks on setting up unified banking rules broke down. Negotiations among the 27-member bloc’s finance ministers stalled over the weekend in Luxembourg after they tried to reach agreement on assigning losses at failing banks as part of proposed rules on bank resolution and recovery. They will regroup June 26, before EU leaders gather the next day for a summit meeting in Brussels.

Asian Stock Futures Drop After U.S. Rebound as Yen Falls

Equity futures from Hong Kong to Australia fell, signaling stocks may extend last week’s global slump, as investors continued to digest the prospect of reduced Federal Reserve stimulus. Standard & Poor’s 500 Index futures retreated 0.2 percent after the gauge rebounded June 21. The MSCI All-Country World Index sank the most in a year last week and almost $2 trillion in global equity value was wiped out after the Fed indicated it could start paring asset purchases this year should the U.S. economy continue to improve. Ten-day volatility on the measure of developed-market stocks surged to the highest level since July. The Dollar Index has rallied every day since the Fed’s June 19 statement amid the slump in stocks, bonds and commodities.

China May ‘Fine-Tune’ Monetary Policies Amid Cash Squeeze

China may adjust monetary policy as needed while seeking more efficient use of the nation’s financial resources as a cash squeeze in the banking system risks exacerbating an economic slowdown. The People’s Bank of China said the nation should “appropriately fine-tune” its policies, according to a statement on its website yesterday that summarized the monetary policy committee’s second-quarter meeting in Beijing. It was the first time since September that the panel, led by Governor Zhou Xiaochuan, has used the “fine-tune” phrase, suggesting officials are more open to loosening policies. (Source: Bloomberg)