Market Review

The FBMKLCI starts the week with a gain, closing 0.5% higher as result of outperformance in some of the index constituents such as YTL (+4.9%), TENAGA (+1.6%) and SUNWAY (+2.8%). All the sectors ended in positive note with the most gains seen in Utilities (+2.7%), Energy (+1.6%) and Property (+1.3%). The broader market sentiment remained positive, with 685 gainers against 408 losers.

Economics

China: 10-Year yield declines to historic low as rally extends

The yield on China’s 10-year government bonds fell to a record low of 2.18%, driven by investor pessimism about the domestic economy and anticipation of further stimulus measures. This decline marks the lowest point since Bloomberg started tracking the data in 2002. Yields on 20- and 50-year bonds have also remained at historic lows for months. Weak economic growth, expectations for additional stimulus, and ample liquidity in the financial system due to low loan demand have fueled the bond rally. Increased government borrowing for fiscal stimulus has not deterred bond buyers. Despite this trend, the People’s Bank of China has hinted at selling some of its holdings to temper the bond market's advance. (Bloomberg)

China: Outlook worries linger even after strong factory showing

Despite a rise in the Caixin manufacturing PMI to 51.8 in June, concerns over China's economy remain due to weak domestic demand and low market confidence. The PMI increase, the highest since May 2021, suggests expansion, but future output expectations are at their lowest since 2019. China's sovereign yields hit record lows, reflecting economic pessimism. Strong exports contrast with subdued domestic demand amid a prolonged real estate crisis and a weak job market. Without stronger stimulus, China's GDP growth may miss the 5% target for 2024. New-home sales from the top 100 real estate companies fell 17% year- on-year in June, improving from a 34% decline in May. (Bloomberg)

Japan: Yen volatility into Fed, BOJ meetings rises to Two-Month High

One-month implied volatility in USD/JPY has risen above 10% for the first time since May 6, due to the upcoming policy decisions from the Federal Reserve and the Bank of Japan on July 31. The gauge increased by 54 basis points to 10.04%, with a relative premium of 291 basis points favouring implied volatility, the highest since late April. Risk reversals have risen to 64 basis points, indicating a preference for puts over calls, as traders maintain yen exposure ahead of the BOJ meeting, albeit with less conviction as the spot rate nears 161. Demand for low-delta exposure has decreased, with 10-day flies trading at 1.30 volatility, down from 1.39 on June 26, aligning with broader G-10 currency movements post-France’s legislative elections. (Bloomberg)

US: Fed gets heartening inflation data, but slow road ahead

Recently, U.S. Federal Reserve officials received encouraging news indicating a cooling inflation trend, easing concerns raised by earlier strong price increases this year. The latest data from the Bureau of Economic Analysis showed no increase in inflation from April to May, suggesting that current monetary policy measures may be sufficiently restrictive. Despite this progress, the year-over-year target of 2% for the personal consumption expenditures price index remains distant, standing at 2.6% in the latest report. This complicates discussions around the timing of potential interest rate cuts, with markets now pricing in a likelihood of two rate cuts by December, reflecting growing confidence that inflation could stabilise towards the Fed's target over the coming months. (Reuters)

Companies

Mah Sing: Tops out M Arisa Towers in Sentul, completion expected by 4Q2024

Mah Sing Group Bhd has topped out both towers of M Arisa, its affordable residential development in Sentul, which is now 85% completed and slated for completion by 4Q2024. M Arisa, fully sold out, features amenities such as Sentul's first multi-level sky garden and an urban forest concept, offering a contemporary lifestyle at an affordable price. The project, with an estimated gross development value of RM653m, consists of two 55-storey towers with 1,598 units, designed to minimise heat absorption and lower energy consumption. (The Edge)

Kinergy Advancement: With Johor Corp to develop energy-efficient solutions for data centers

Kinergy Advancement Bhd has partnered with Johor Corp (JCorp) to develop sustainable energy solutions, focusing on energy-efficient initiatives for data centres. The collaboration, led by Kinergy’s subsidiary KAB Energy Holdings Sdn Bhd, aims to implement district cooling systems to reduce energy consumption and enhance power usage effectiveness in data centres. This partnership is expected to positively impact Kinergy's future earnings and EPS for the financial year ending Dec 31, 2024. Shares in Kinergy remained unchanged at 37sen, valuing the company at RM735m. (The Edge)

Southern Score Builders: Secures RM315m contract for residential apartment blocks

Southern Score Builders Bhd (SSB8) has been awarded an RM315m contract by Smart Advance Resources Sdn Bhd through its subsidiary, Southern Score Sdn Bhd (SARSB), to develop three residential apartment blocks totalling 794 units. The project includes amenities like a swimming pool, podium car park, guard house, and electrical facilities. With this contract and others secured in 2024 totalling RM933.2m, Southern Score's order book now stands at RM1.4bn, providing earnings visibility over the next few years. (The Edge)

Vitrox: Begin construction of training and industrial research centre after RM46m contract award to SIB

ViTrox Corp Bhd (VITROX) has appointed South Island Building Sdn Bhd (SIB) to construct the first block of its ViTrox Institute of Technology (VIT), a five-storey training and industrial research centre in Penang for RM46m. Scheduled for completion by January 2026, the facility aims to expand ViTrox’s high- technology ecosystem at Batu Kawan Industrial Park, part of the company's 10-year expansion plan. VIT will accommodate up to 450 students annually, focusing on addressing talent shortages in STEM fields, particularly in engineering and computer sciences, crucial for the semiconductor industry. (The Edge)

Country Heights: Working to return Mines Waterfront Business Park to solvent status

Country Heights Holdings Bhd is actively engaged in resolving the winding-up of its subsidiary MWBP, facing RM3.8m in claims from various creditors and legal challenges, including a significant debt from 23 Century International Life Science Sdn Bhd. Despite these financial hurdles, Country Heights has deposited 10% of the proof of debt and is pursuing legal avenues to recover nearly RM6m in receivables from MWBP tenants, aiming to return MWBP to solvent status promptly. (The Edge)

PUC: Dispose of software, IP rights for RM22m

PUC Bhd, a digital payment solutions provider, is selling software and intellectual property rights for RM22m cash through its subsidiary Presto Technology Sdn Bhd to G Solution Tech Sdn Bhd. This move aligns with PUC's strategy to streamline operations and focus on more profitable ventures, with the disposal expected to be completed by Q1 2025. (The Edge)

Toyo Ventures: Defers commencement of EPCC works for Vietnam thermal power plant

Toyo Ventures Holdings Bhd has delayed the start of EPCC works for its thermal power plant project in Vietnam by up to six months, due to an extended deadline for issuing the notice to proceed (NTP) under a revised contract with Sunway Construction Group Bhd and PECC2. The project, initially valued at US$2.42bn, was slated to begin EPCC works earlier, but delays in securing financing and issuing the NTP have pushed timelines back. (The Edge)

Telekom Malaysia: Awarded RM1.3bn contract to undertake a new emergency call system for 12 years

Telekom Malaysia Bhd (TM) has secured an RM1.3bn contract to develop and operate the Next Generation Emergency Services 999 (NG999) system, which will enhance Malaysia's emergency response capabilities for 12 years starting from 2024. This strategic digital platform will integrate emergency services from key agencies like the Royal Malaysian Police and the Ministry of Health, facilitated by TM Technology Services Sdn Bhd. (The Edge)

Source: Mercury Securities Research - 11 Jul 2024