PublicInvest Research Headlines - 28 Dec 2018



Economy

US: Consumer confidence falls as job expectations plunge. US consumer confidence slumped in Dec to the lowest since July as a gauge of labor market expectations fell by the most in 41 years, the latest sign Americans are growing less optimistic as stock markets gyrate and the expansion moderates. The confidence index decreased to 128.1 from 136.4, according to a report Thursday from the New York based Conference Board. That missed every economist estimate in Bloomberg’s survey, which called for 133.5. A measure of consumer expectations fell to a two-year low while the share of people expecting more jobs in the next six months decreased to 16.6% from 22.7%, the biggest drop since 1977. (Bloomberg)

US: Ex-Fed Governor urges slower rate hikes, views Trump as ‘noise’. Federal Reserve officials should slow the pace of interest-rate hikes and consider President Donald Trump’s criticism of their tightening campaign as “background noise,” according to former Fed Governor Lawrence Lindsey. “The best way to think about the president is as background noise, and that’s the way the Fed should think about it, and they should focus on the facts,” Lindsey said. “And the facts are, with inflation below their target and falling, and financial markets having some stresses -- not just here but around the world -- that it’s not such a great idea to go fast anymore.’’ (Bloomberg)

US: Jobless claims fall to 216,000, showing tight labor market. US filings for unemployment benefits decreased for the third time in four weeks, hovering near an almost five-decade low that reflects a robust job market. Jobless claims fell by 1,000 to 216,000 in the week ended Dec 22, matching the median estimate in a Bloomberg survey of economists and following a revised reading of 217,000 for the prior week, Labor Department figures showed Thursday. The four-week average, a less-volatile measure, fell to a six-week low. Employers continue to hold on to existing workers and are reluctant to fire staff, one reason why applications for unemployment benefits are still near historically low levels. (Bloomberg)

US: Inverted curves not only signal recession, they might cause one. An inverted yield curve can potentially harm US economic growth and even cause a recession by pinching bank-lending margins and causing a contraction in loan activity, according to a blog posted on Thursday by the Federal Reserve Bank of St. Louis. An inversion, when yields on short-term Treasuries rise above returns on longer-dated debt, has preceded every US recession for the past 60 years. It’s currently not inverted, though the spread between two- and 10-year Treasuries has flattened. As well as being a barometer of the economy, the yield curve may actually contribute to a slowdown when inverted. (Bloomberg)

EU: ECB says trade protectionism will crimp global growth next year. The European Central Bank expects the global economy to slow next year as rising protectionism curbs trade growth. While economic activity has remained resilient around the world, it has also become more uneven and signs of moderating momentum are increasingly evident, according to the ECB’s latest economic bulletin published on Thursday. Global trade growth has weakened and uncertainties about future trade relations have increased, the central bank added. (Bloomberg)

China: Heads into trade talks bracing for more US demands. China enters trade talks said to begin early next month in Beijing having made concerted efforts to end the standoff with the US, and also unsure it’s done enough. Since Presidents Xi Jinping and Donald Trump came to a temporary truce almost a month ago, China’s removed a retaliatory duty on US automobiles and is drafting a law to prevent forced technology transfers. It’s also slashed import tariffs on more than 700 products and began buying US crude oil, liquefied natural gas and soybeans again. (Bloomberg)

China: Dec early indicators show China slowed for a seventh month. China’s economy slowed for a seventh straight month in Dec, as the trade war, subdued domestic demand and decelerating factory inflation combined to undercut growth. That’s the signal from a Bloomberg Economics gauge aggregating the earliest-available indicators on business conditions and market sentiment. The data suggest the government’s stimulus approach and the trade war truce with the US have yet to have much effect on the nation’s growth trajectory. (Bloomberg)

China: Beige book says plentiful borrowing fails to boost growth. China’s economy is deteriorating and risks heading for a much weaker 2019 as plentiful borrowing by state and private firms is failing to boost growth, according to the China Beige Book. Borrowing was strong for a third consecutive quarter in the final three months, contradicting the mainstream view that risk-averse lenders want nothing to do with capital-starved firms, according to CBB International, which publishes the report. (Bloomberg)
Markets

Axiata (Neutral, TP: RM3.85): Edotco acquires new towers in Cambodia . Edotco, a subsidiary of Axiata Group, announced that it has acquired 325 towers from South East Telecom (Cambodia) Co. (NST)

Comments: No acquisition cost was disclosed but this was not a surprise to us as management has made known that acquisition is a part of edotco’s growth strategy. As at 31 September 2018, edotco has 2,287 towers in Cambodia and another 1,000 managed sites. At the group level, it owns 17,791 towers with another 11,287 sites under management. This new acquisition would only increase the total number of towers owned by 1.8%. Hence, no change to our earnings forecasts on Axiata. Maintain Neutral .

EcoFirst: Seeks to jointly develop RM1.25bn GDV project in Penang with Lone Pine Group. EcoFirst Consolidated is seeking to jointly develop a RM1.25bn GDV mixed residential and commercial project in Paya Terubong, Penang with Penang-based Lone Pine Group. The group has signed a share sale agreement (SSA) to acquire a 70% stake in Geo Valley SB, a member of the Lone Pine Group, for RM44m cash. It said it will first subscribe for a 20% stake in Geo Valley for RM13,333.46. It will then acquire another 3.3m shares for RM44m from Geo Valley shareholders. (The Edge)

Deleum: Bags ExxonMobil job to provide slickline equipment, services. Deleum has bagged a new contract from ExxonMobil Exploration and Production Malaysia Inc to provide slickline equipment and services for the latter. It said the value of the contract depends on the agreed rates and work order issued by customers for the duration of the contract. The three-year contract was awarded to its wholly-owned subsidiary Deleum Oilfield Services SB, with a oneyear extension option. (The Edge)

Ranhill: To spend RM3.4bn on Johor's NRW target of 5% by 2025 with PAAB. Ranhill Holdings' subsidiary Ranhill SAJ SB and water asset management company Pengurusan Aset Air SB (PAAB) will spend RM3.4bn to accelerate the reduction of non-revenue water (NRW) in Johor to 5% by 2025 from its current 24.12%. It said the accelerated NRW reduction programme in the State will span over seven years. (The Edge)

Kronologi: To see emergence of new largest shareholder after RM75m IT firm buy. Kronologi Asia plans to acquire IT infrastructure company Sandz Solutions (Singapore) Pte Ltd for RM75m using a combination of cash and new share issuance, which will pave the way for the emergence of a new single, largest shareholder in the group. The deal, if it gains shareholders' and authorities’ approvals, will see Sandz' current owner, Desert Streams Investment Ltd (DSIL) that is controlled by Enrique Galang Velasco, becoming Kronologi's single, largest shareholder with a 23.65% stake, according to Kronologi. (The Edge)



Karyon Industries: To exit metal stearates manufacturing business in China. Karyon Industries is exiting the metal stearates and mixed metal stabilisers manufacturing business in China via the cessation of operations at its China-based JV company, Karyon (Jinhua) Advanced Materials Co Ltd (KJAM). Karyon, via its whollyowned subsidiary Karyon Ventures SB (KVSB), owns 66.67% of KJAM shares, while the remaining 33.33% stake is held by Southern Aluminium Product Co Ltd (SAP). (The Edge)
Market Update

The FBM KLCI might open higher today after US equities surged back into positive territory in the final hour of trading on Wall Street on Thursday, extending the previous day’s record-breaking bounce and further cutting the losses from a turbulent run-up to Christmas. Shares rallied near the end of what had looked like another bruising session. The S&P 500 index added 0.9%, reversing a decline of as much as 2.8% earlier in the session. The Dow Jones Industrial Average also ended in positive territory, for a gain of 1.1%, as did the tech-heavy Nasdaq Composite, which was previously down more than 3%. Still, data showing US consumer sentiment had worsened more than analysts expected cast a pall over trading earlier on Thursday. The December Conference Board survey showed confidence at its lowest level for five months, as political tensions and the economic outlook feed through into expectations for job prospects and business conditions. The US market’s whipsaw followed a sell-off in European shares on Thursday. The region-wide Stoxx 600 index reached its lowest level since November 2016, down 1.7%. The UK’s FTSE 100 hit its lowest level since July 2016, closing down 1.5%.

Back home, the FBM KLCI index gained 18.12 points or 1.08% on Thursday. Trading volume increased to 1.61bn worth RM1.21bn. Market breadth was positive with 595 gainers as compared to 221 losers. The regional markets were mixed in Thursday’s trading, with some settling back after early advances. Japan’s benchmark Topix closed up 4.9%, but Hong Kong’s Hang Seng index fell 0.7% and China’s CSI 300 lost 0.4%.

Source: PublicInvest Research - 28 Dec 2018

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