Economy
Global: Emerging market borrowing spree lifts global debt to record USD217trn. Global debt levels have surged to a record USD217trn, driven by a USD3trn borrowing spree in the developing world, the Institute of International Finance (IIF) said, warning of risks to emerging markets from short-term debt repayments. The IIF, one of the most authoritative trackers of capital flows, said in a note that global debt amounted to 327% of the world’s annual economic output (GDP) by 1Q2017 and the rise was driven principally by emerging market borrowing. (Reuters)
Global: Central bankers tell the world borrowing costs are headed higher. Global central bankers are coalescing around the message that the cost of money is headed higher – and markets had better get used to it. Just a week after signaling near-zero interest rates were appropriate, BOE Governor Mark Carney suggested that the time is nearing for an increase. His US counterpart, Janet Yellen, said her policy tightening is on track and Canada’s Stephen Poloz reiterated he may be considering a rate hike. (Bloomberg)
US: Trump to press trade deficits in autos, steel with Korea’s Moon. President Donald Trump plans to press South Korean President Moon Jae-In on trade imbalances, particularly in autos and steel, when the two leaders meet this week, administration officials said. Trump wants South Korea to reduce barriers to US auto exports to the country and is concerned by the “enormous” amount of surplus steel the US imports from the country, especially shipments that come via China, one of the officials said. (Bloomberg)
EU: Brexit-sized hole in budget requires new revenue, EU says. The EU should consider introducing common taxes as it seeks to overhaul its budget and cover a more-than EUR10bn (USD11.4bn) annual financing hole created by Brexit, the bloc’s executive arm said. Even though the withdrawal of the U.K. “will signify the loss of an important partner and contributor to the financing of EU policies and programs,” it will also “remove some obstacles to reform on the revenue side of the EU budget,” the European Commission said. (Bloomberg)
EU, Japan: Press ahead on free trade pact to counter US protectionism. Japanese and EU negotiators meeting in Tokyo aim to reach a free trade deal that would stand against a protectionist tide threatening the global economy, and make the US think twice over pursuing inward-looking policies. Japan and the EU have been negotiating since 2013, but talks have intensified since last week, with almost daily meetings to overcome key hurdles, including tariffs on Japanese automobiles and car parts and European wine, cheese, pasta and other foods. (Reuters)
UK: Carney says BOE may need to remove stimulus as slack erodes. Mark Carney said the BOE’s Monetary Policy Committee may need to begin raising interest rates and will debate a move in the next few months. “Some removal of monetary stimulus is likely to become necessary if the trade-off facing the MPC continues to lessen and the policy decision accordingly becomes more conventional,” Carney said in prepared introductory remarks for a panel at the ECB Forum. (Bloomberg)
UK: May faces further Queen’s speech tests from Labour on Brexit. Prime Minister Theresa May will face a further test of her minority administration Thursday ahead of the final vote of her Queen’s Speech as the Labour opposition seeks to introduce elements of its manifesto into her legislative program. Labour is tabling an amendment pushing for the richest to pay more tax and for Britain to keep the benefits of the EU’s single market and the customs union, while falling short of calling to retain membership of both. (Bloomberg)
China: To further relax curbs on foreign investment. China removed the number of restricted items for foreign investment by about a third, allowing more access into its services, manufacturing and mining sectors. In new guidelines jointly issued by the National Development and Reform Commission and Ministry of Commerce, the government removed 30 restricted items compared with the 2015 version, leaving 63 on the list. The new guidelines will take effect from July 28. (Reuters)
China: Economy improves in 2Q but deleveraging poses risks. China's economy continued to improve in 2Q, with corporate profits rising and hiring up, a private survey showed, but it suggested the Asian giant may have to brace for tougher times ahead even though firms have been able to weather a tighter financing environment. The quarterly survey of thousands of Chinese firms by China Beige Book International (CBB) showed that while the property sector slowed, manufacturing improved further and the retail and services industries bounced back after a difficult 1Q. (Reuters)
Japan: May retail sales rise 2.0% YoY. Japanese retail sales rose 2.0% in May from a year earlier, government data showed, compared with economists' median estimate of a 2.6% increase. (Reuters)
Markets
Sapura Energy (Outperform, TP: RM2.06): Completes subsea oil wells job in Australia . Sapura Energy’s (SAPE) wholly-owned Australian unit Sapura Energy Australia Pty Ltd has completed the Shell Prelude Light Well Intervention (LWI) Campaign-Plug Removal Activity for Shell Australia Pty Ltd in Western Australia in the Browse Basin in Western Australia. SEB said the campaign was part of the Shell Prelude Floating Liquefied Natural Gas Project and was completed on June 16. Awarded in June 2016, the campaign marks the first official project for Shell in Australia and is the first of the five year call-off service agreement to supply an integrated service solution for LWI equipment and services enabling cost-effective intervention operations. (StarBiz) Comments: This award completion continues to reaffirm SAPE’s execution competencies, and highlights the Group’s technological advances while leveraging on its capabilities as a solution provider with its intervention vessel, Sapura Constructor, which is equipped with the Riserless Light Well Intervention (RLWI) system including the recently upgraded Subsea Intervention Device and Intervention Compensation System. This system has allowed the work to be performed on subsea wells without the use of a conventional drill rig and moreover has translated to cost savings and easier mobilisation. We understand that under the same 5-year call-off agreement, Sapura Energy Australia is currently working on Shell Australia’s LWI Campaign — Wellhead Retrieval Activity, which involves the severance and retrieval of seven wellheads. The project is scheduled to be completed in July 2017. We therefore continue to reiterate our Outperform recommendation on SAPE with a TP of RM2.06, premised on our blended SOP valuation.
Maxis (Neutral, TP: RM5.90): UMobile is terminating the network sharing and alliance agreement. U Mobile SB (UMobile) is terminating the network sharing and alliance agreement with Maxis, which will take place in stages over the next 18 months. (Bursa Malaysia) Comments: In Oct 2011, UMobile and Maxis signed a mutually beneficial agreement with Maxis providing 3G RAN (Radio Access Network) access to UMobile. The move has allowed improved utilization of Maxis’ network in areas that were underutilized while UMobile saw its physical network coverage expanded by 4-5x. However, financial terms of the agreement were not disclosed but Maxis said the termination is not expected to have any material financial effect. As the termination occurs in phases over the next 18 months, the full impact would only be felt in 2019 and we estimate that Maxis’ FY19F earnings would drop by about 4%. This termination was not a surprise given that UMobile has recently secured new spectrum under the 900MHz and 1800MHz band. As mentioned earlier, we expect competition to intensify as newer players like UMobile and DiGi are able to offer better quality products and services with the rolling out of the additional spectrum effective July 2017. We maintain our Neutral rating on Maxis.
Ikhmas Jaya: Bags RM36.0m job to work on Phase 2 of Setia City Mall. Ikhmas Jaya Group has bagged a RM36.0m contract for works at the proposed Setia City Mall Phase 2 retail development in Selangor. The group said its unit had accepted the Letter of Award today to carry out site clearance, earthworks, piling and pile caps, ground slab and ancillary works for the project from Greenhill Resources SB. Greenhill Resources — a JV between SP Setia and Asian Retail Investment Fund — is the developer of the Setia City Mall. Ikhmas Jaya said the contract works are expected to commence on Aug 9, 2017 and be completed by Apr 11, 2018. (The Edge)
Bintai Kinden: Bags RM32.4m contract from Singapore govt. Bintai Kinden Corp's 69.82%-owned subsidiary in Singapore has won a SGD10.4m (RM32.4m) government contract to provide integrated facilities management services. Bintai Kinden said Bintai Kindenko Pte Ltd will undertake the job, which includes mechanical and engineering work, at the National Development Ministry's offices in Jem Office Tower. "No major risk is foreseeable on the contract which will be running for a base period of 36 months commencing August 2017 with an option to extend for a further period of up to 24 months thereafter," it said. (The Edge)
Sunsuria: Teams up with China’s CITIC to jointly undertake construction and property jobs . Sunsuria is teaming up with Hong Kong-based CITIC International Investment Ltd (CIIL) to carry out construction work and property development in Malaysia. Sunsuria said that its wholly-owned subsidiary Sunsuria Builders SB (SBSB) signed an agreement with CIIL to establish a JV company for the purpose. CILL is wholly-owned by Chinese state-owned CITIC Construction Co Ltd, which in turn is a wholly-owned subsidiary of Fortuine Global 500 company CITIC Ltd. SBSB and CIIL would own the JV Company on a 49:51 basis. (The Edge)
Guan Chong: To acquire company to raise grinding capacity. Cocoa butter maker Guan Chong plans to buy Koko Budi SB for RM17.0m in order to expand organically by raising its overall grinding capacity. Guan Chong intends to buy 100% equity interest in Koko Budi, which is involved in the same business as Guan Chong’s subsidiaries, the group said. It entered into a share sale agreement with the vendors for 3.8m shares today which would later make Koko Budi its wholly-owned subsidiary. (The Edge)
Magni-Tech: Announces higher dividend after profit doubles in 4Q. Magni-Tech Industries’ net profit in 4QFY17 doubled to RM38.5m from RM18.8m a year earlier, mainly because it recorded higher garment sales and benefited from favourable foreign exchange rates. The group plans to pay 7 sen dividend per share for FY17, comprising a final dividend of 3 sen and a special dividend of 4 sen. The special dividend is 2 sen higher than FY16's, "mainly due to encouraging financial performance of the group", it said. This brings its total FY17 payout to 23 sen, from 18 sen in FY16. (The Edge)
Construction (Overweight): Prasarana: Phase 2 of MRT project 99% completed. The construction of Phase 2 of the Mass Rapid Transit (MRT) project is 99% completed and will be operational by next month as scheduled, Prasarana Malaysia president and group CEO Datuk Seri Azmi Abdul Aziz said. The 3km Semantan-Kajang line, which connects the Kelana Jaya, Sri Petaling, Ampang and KL Monorail stations, is currently undergoing various tests to ensure smooth operation of the train service, Azmi said. Phase 2 of the MRT will be launched this July 17 by the Prime Minister Datuk Seri Najib Tun Razak, and the 51km Sungai Buloh-Kajang line will be fully operational by then. (Bernama)
Market Update
The FBM KLCI might open with a whimper today after central bank policy comments fuelled another dramatic session for the foreign exchange and fixed-income markets, pushing the Euro to a one year high against the Dollar and helping Sterling return to pre-UK election levels. Wall Street brushed aside any lingering disappointment at the delay to the healthcare legislation vote, with the S&P 500 climbing back towards its recent record high. Oil prices rose for a fifth day as participants focused on news of a dip in US gasoline inventories last week, while gold continued to rally in the wake of Monday’s steep decline. The European Central Bank attempted a damage limitation exercise following the sharp rise in the Euro and sovereign debt yields sparked by comments from Mario Draghi on Tuesday that were viewed by many as paving the way for a tapering of its stimulus measures. Senior figures in the ECB were reported to have signalled that the markets had “misinterpreted” Mr Draghi’s message — triggering a fresh bout of volatility. On Wall Street, the S&P 500 climbed 21.31 points, or 0.9%, to end at 2,440.69, its largest one-day gain since April 24. Meanwhile, the Dow Jones Industrial Average gained 143.95 points, or 0.7%, to 21,454.61 and the Nasdaq Composite Index rose 87.79 points, or 1.4%, to 6,234, recording its biggest one-day gain since Nov. 7. In Frankfurt, the export-heavy DAX 30 closed off session lows, ending down 0.2% at 12,647.27. Elsewhere, France’s CAC 40 index finished down 0.1% at 5,252.90 and the UK’s FTSE 100 dropped 0.6% to 7,387.80.
Back home, the FBM KLCI index lost 8.22 points or 0.46% to 1,771.23 points. Trading volume increased to 1.40bn worth RM1.85bn. In Hong Kong, the Hang Seng fell 0.6%. China’s Shanghai Composite lost 0.5%, with investors unnerved by sharp losses among Hong Kong small-caps. Japan’s Topix fell 0.3%. As for crude oil prices, Brent crude settled 1.4% higher at US$47.31 a barrel, its highest for more than a week and US West Texas Intermediate was up 1.1% in late trade at US$44.72. The latest report from the Energy Information Administration showed that US crude Inventories rose by 118,000 barrels last week, compared with expectations of a 2.15m barrel decline.
Source: PublicInvest Research - 29 Jun 2017
http://klse.i3investor.com/blogs/PublicInvest/126352.jsp
