Monday, November 27th, 2017

 

High-end property freeze not enough to resolve overhang: Moody’s

PETALING JAYA: Moody’s Investor Service in a report issued today opined that the freeze on approvals for properties above RM1 million would not be enough to correct the oversupply over the next five years, when property projects now in development enter the market.

“Other than the recent government measure targeted to limit new property developments, it remains unclear what additional measures the Malaysian authorities would take to ensure the existing excess supply in various property segments and new supply entering the market can be effectively deployed and utilised.

“In our view, the increasing oversupply and the prospects of a material property price correction will continue to build as new supply enters the market and poses a risk to Malaysian banks’ asset quality,” Moody’s said.

It said the volume of Malaysia’s unsold and vacant properties has risen substantially over the past three years and is likely to increase, raising the risk of a material decline in property prices that would diminish bank asset quality.

“These developments are credit negative for Malaysian banks,” it said.

It expects a material decline in Malaysia’s property prices in the event of a prolonged period of supply overhang as market valuation adjusts to reflect the lack of demand.

In its credit outlook note, the rating agency said that in such a scenario the quality of housing loans with high loan-to-value (LTV) ratios are most at risk.
“We understand from our rated banks in Malaysia that 20%-30% of mortgages booked each year have LTV ratios of 90% or higher at the time of origination,” it said.

According to Bank Negara Malaysia (BNM), the banking system’s total loan exposures to property segments with acute oversupply (commercial property and high-end, high-rise residential) account for 8% of total bank lending, and the impaired loan ratios for the segments are low at 1.1% to 1.2%.

Much of the new supply is in Malaysia’s key states, where supply-demand imbalances in various segments of the property market, including residential housing, commercial office and retail shopping complex, have occurred since 2015.

These areas include Kuala Lumpur, Penang and Johor, which the central bank has warned will likely have the largest property market imbalances in the country. Johor has the largest share of unsold residential units (27%), followed by Selangor (21%), Kuala Lumpur (14%) and Penang (8%).

BNM said the large volume of unsold properties reflects the majority of newly completed properties were priced above RM250,000 and do not cater to demand for affordable new housing.

In the commercial office segment, vacancy rates have risen steadily since 2015. BNM estimates that office vacancy rates could rise to 32% by 2021, from 24% in first quarter of 2017, considering the large development projects such as Tun Razak Exchange and Bukit Bintang City Centre in Kuala Lumpur that are already under way.

In the retail shopping complex segment, total retail space per capita has increased sharply in key Malaysian states over the years, and now surpasses regional markets such as Hong Kong and Shanghai. The large incoming supply of retail space will exacerbate the oversupply situation and raise the vacancy rates across Kuala Lumpur, Penang and Johor from current levels of 13% to 30%.


Bitcoin price tops US$9,700 before easing back

PETALING JAYA: The cryptocurrency Bitcoin, which is expected to end the year at US$10,000 (RM41,100), hit the US$9,707 mark today, jumping more than 17% over the weekend, before losing some momentum to trade at US$9,534 as at press time.

FXTM global head of currency and market research Jameel Ahmad told SunBiz yesterday indications that Bitcoin is making further progress towards being accepted by the mainstream are primarily behind another surge in purchasing momentum for the cryptocurrency.

He noted that established hedge funds appear to be slowly becoming more favourable towards Bitcoin, which will diversify its reach away from individual retail investors.

Therefore, Jameel said, Bitcoin’s increasing acceptance into the mainstream will likely keep the momentum for the cryptocurrency on the buying side, meaning that the headline buying momentum is unlikely to change heading into next year.

In an analysis today, FXTM chief market strategist Hussein Sayed said there is still more potential for this momentum trade to continue, given that number of participants has not exceeded 0.1% of the global population.

“Whether the price will be justified in the foreseeable future, depends on the adoption and the application of the new currency, but so far it still looks unstoppable,” he said.

Hussein said the cryptocurrency continued to gather pace over the weekend, rising above US$9,000, despite warnings of bubble being created in this new asset class.

From a fundamental perspective, he said, it is still almost impossible to give the cryptocurrency a fair value, but there has been a strong correlation between the Bitcoin’s price and the number of users opening new wallets.

“It is not just retail investors showing interest in the cryptocurrency, but many hedge funds have decided to join the party recently by including Bitcoins in their portfolios,” he added.


US stocks rise on positive holiday shopping buzz

NEW YORK, Nov 27 — Retailers saw their share prices gain early today amid upbeat signs about the holiday shopping  season, kicking off a week that includes testimony in Congress by two US Federal Reserve officials. US stocks were positive as…


Uber’s Israeli services halted by court injunction

TEL AVIV, Nov 27 — Uber has been ordered to halt a trial service in Tel Aviv that the US ride-hailing company had hoped would pave the way for full operations in Israel. The Israeli court injunction against Uber is the latest in a string of…


Split on odds of interest rate hike in 2018

PETALING JAYA: Analysts are mixed as to whether Bank Negara Malaysia will increase the Overnight Policy Rate (OPR), the benchmark interest rate, next year, with AmBank Research expecting two increases and PublicInvest Research none at all.

AmBank Research said it expects Bank Negara Malaysia (BNM) to initiate its first rate increase by 25 basis point (bps) in January 2018 and another 25 bps hike in the third quarter of 2018 (Q3 2018), which should normalise the OPR to 3.5%.

It said in a note today that the economy, underpinned by inflationary pressure, has been in negative returns since January and added that with the strong gross domestic product (GDP) growth and healthy private wages, there are strong signs for interest rate increases next year.

The research house projects inflation to stay around 4.0% this year and between 2.5% and 3.0% for 2018.

It said headline inflation in October rose 3.7% as both food and non-food prices grew at a slower pace by 4.4% year-on-year (y-o-y) and 3.4% y-o-y respectively, while fuel prices climbed 20.5% y-o-y.

During the period, it said, core inflation remained stable at 2.3% y-o-y and is expected to inch up in the coming months fuelled by a stronger average GDP growth of 5.9% for three quarters and increase in private sector wages, which were up 7.3% y-o-y in Q3 2017 for the second consecutive quarter.

PublicInvest Research on the other hand opines that the central bank is likely to keep the policy rate unchanged at 3% for 2018.

“We argued previously that the central bank is not making a firm commitment to normalise interest rates in 2018. Although the probability is there, the risks are not overwhelming and, hence, its relatively dovish tone for now.

“Therefore, we need more conviction before making a firm stand that the OPR may get adjusted next year,” it added.

The research company said the inflation trend may ease in 2018, supported by the high base effect in 2017 and positive sentiment towards the ringgit following the expectation of rising oil prices.

“Sentiment on the ringgit may also remain favourable following Malaysia’s solid Q3 2017 GDP growth which is among the highest in the region. All these mutually reinforcing catalysts for the ringgit may assuage inflation to some extent as importation costs may come down,” PublicInvest Research added.


Split on odds of OPR hike in 2018

PETALING JAYA: Analysts are mixed as to whether Bank Negara Malaysia will increase the Overnight Policy Rate (OPR), the benchmark interest rate, next year, with AmBank Research expecting two increases and PublicInvest Research none at all.

AmBank Research said it expects Bank Negara Malaysia (BNM) to initiate its first rate increase by 25 basis point (bps) in January 2018 and another 25 bps hike in the third quarter of 2018 (Q3 2018), which should normalise the OPR to 3.5%.

It said in a note today that the economy, underpinned by inflationary pressure, has been in negative returns since January and added that with the strong gross domestic product (GDP) growth and healthy private wages, there are strong signs for interest rate increases next year.

The research house projects inflation to stay around 4.0% this year and between 2.5% and 3.0% for 2018.

It said headline inflation in October rose 3.7% as both food and non-food prices grew at a slower pace by 4.4% year-on-year (y-o-y) and 3.4% y-o-y respectively, while fuel prices climbed 20.5% y-o-y.

During the period, it said, core inflation remained stable at 2.3% y-o-y and is expected to inch up in the coming months fuelled by a stronger average GDP growth of 5.9% for three quarters and increase in private sector wages, which were up 7.3% y-o-y in Q3 2017 for the second consecutive quarter.

PublicInvest Research on the other hand opines that the central bank is likely to keep the policy rate unchanged at 3% for 2018.

“We argued previously that the central bank is not making a firm commitment to normalise interest rates in 2018. Although the probability is there, the risks are not overwhelming and, hence, its relatively dovish tone for now.

“Therefore, we need more conviction before making a firm stand that the OPR may get adjusted next year,” it added.

The research company said the inflation trend may ease in 2018, supported by the high base effect in 2017 and positive sentiment towards the ringgit following the expectation of rising oil prices.

“Sentiment on the ringgit may also remain favourable following Malaysia’s solid Q3 2017 GDP growth which is among the highest in the region. All these mutually reinforcing catalysts for the ringgit may assuage inflation to some extent as importation costs may come down,” PublicInvest Research added.


Fitch assigns Sime Darby Plantation a ‘BBB+’ rating

PETALING JAYA: Fitch Ratings has assigned Sime Darby Plantation Bhd a long-term foreign currency issuer default rating (IDR) of ‘BBB+’ with stable outlook and a senior unsecured rating of ‘BBB+’.

It also removed the Rating Watch Negative on the US$1.5 billion (RM6 billion) sukuk programme and the outstanding issuance under the programme, which were transferred to Sime Darby Plantation from Sime Darby Bhd in May 2017, and affirmed them at ‘BBB+’.

Meanwhile, Sime Darby was assigned a rating of ‘BB+’ down from ‘BBB+’ for its long-term foreign and local currency issuer default ratings.

“Fitch has noted that following the demerger of its property and plantation businesses, Sime Darby will be a smaller company focused on the automotive and industrial equipment sectors. However it must be noted that following a group wide debt restructuring exercise, as of September 2017, Sime Darby had a total debt of just RM2.8 billion, and a lower debt to equity ratio of 18%,” the group said in a statement today.

Fitch also downgraded Sime Darby’s senior unsecured rating to ‘BB+’ from ‘BBB+’. Simultaneously, the ratings have all been removed from Rating Watch Negative, in place since March 2, 2017. 

The group said Fitch’s rating is an affirmation of its efforts to become the preferred sustainable palm oil and fats specialist and a trusted customer solutions provider. Sime Darby Plantation will explore and expand opportunities to increase its presence in other key geographical markets.

“This news has come at an opportune time and augurs well for the prospects of our business as we enter this next phase in our journey …,” said Sime Darby Plantation executive deputy chairman and managing director Tan Sri Mohd Bakke Salleh.

After the listings of Sime Darby Plantation and Sime Darby Property Bhd this Thursday, Sime Darby will be focused on its motors and industrial divisions.

In revising Sime Darby’s rating, Fitch noted that it expects Sime Darby Motors’ earnings before interest, taxes, depreciation and amortisation to continue growing steadily, and that higher commodity prices will drive a recovery for Sime Darby Industrial.


Foreign interest trickles back to Bursa

PETALING JAYA: Foreign interest returned to Bursa Malaysia last week but only marginally, with international investors buying RM88.6 million net of Malaysian equities last week.

Although the amount bought was the highest weekly inflow recorded since the week ended Sept 15, it was insufficient to offset the attrition in the preceding week, which amounted to RM297.1 million net.

“Last week, foreign investors were net buyers in two out of five trading days. Foreign buying was the strongest on Wednesday which amounted to RM214.5 million net,” MIDF Research said in its fund flow report today.

Year to date, foreign investors have bought RM9.1 billion worth of local equities.

Foreign participation shrank last week as the foreign average daily trade value (ADTV) eased by 24% to RM856 million while retail ADTV declined by 12%.


MiE Holdings seeks listing on Main Market

PETALING JAYA: Mi Equipment Holdings Bhd (MiE Holdings) plans to list its shares on the Main Market of Bursa Malaysia Securities Bhd in 2018.

In a draft prospectus exposure with the Securities Commission, MiE Holdings said its initial public offering (IPO) will entail the issuance of 134.43 million shares, of which 25 million shares will be available for application by the Malaysian public.

MiE Holdings’ principal activity is investment holding, whilst the group is principally involved in the design, development, manufacture and sale of wafer level chip scale packaging sorting machines with inspection and testing capabilities for the semiconductor industry.

It is also involved in the provision of maintenance services and technical support for these machines, as well as the sale of related spare parts and components.

The proceeds from the IPO will be used for the construction of new factories cum offices in Batu Kawan and Bayan Lepas, Penang, as well as for research and development.

“We plan to introduce new assembly and packaging machines into our product line-up. We intend to relocate our existing operations to the Bayan Lepas factory to increase our production capacity as well as to manufacture precision fabricated parts to complement and support our existing business. We plan to set up our Batu Kawan factory to cater for future increase in our production capacity,” MiE Holdings said.

The group posted a net profit of RM16.08 million and revenue of RM57.09 million in the financial year ended Dec 31, 2016.

About 17.5 million shares will be available for application by its eligible directors, employees and business associates; while 60.45 million shares will be available by way of private placement to identified investors; and 31.48 million shares by private placement to identified bumiputra investors.

At the same time, MiE Holdings will be offering to sell 18.52 million shares by way of private placement to identified bumiputra investors.

Its principal adviser, sole underwriter and sole placement agent for the exercise is Affin Hwang Investment Bank Bhd.


RHB Bank’s Q3 net profit hit by lower income, higher expenses

PETALING JAYA: RHB Bank Bhd’s net profit for the third quarter ended Sept 30, 2017 fell 3.27% to RM488.83 million from RM505.33 million a year ago due to lower other operating income and higher other operating expenses.

In a filing with Bursa Malaysia today, the group reported other operating income of RM414.95 million during the quarter compared with RM496.33 million a year ago while other operating expenses was higher at RM793.62 million compared with RM776.47 million a year ago.

Revenue for the quarter fell 1.23% to RM2.62 billion from RM2.65 billion a year ago.

For the nine months ended Sept 30, 2017, net profit rose 4.91% to RM1.49 billion from RM1.42 billion a year ago while revenue for the period fell 1.78% to RM7.87 billion from RM8.01 billion a year ago.

The group attributed the improved earnings to lower impairment losses on other assets and higher net funding income, partially offset by lower non-fund based income, higher overheads and higher loan loss impairment.

During the period, net fund based income rose 5.2% to RM3.4 billion from a year ago due to loans growth and lower interest expense from prudent funding cost management and redemption of sub-debts and senior notes in the second quarter, resulting in a stabilised net interest margin of 2.19% over the last two quarters.

Non-fund based income was 10.9% lower at RM1.32 billion largely due to lower net foreign exchange gain, lower commercial/investment banking fee income, lower trading and investment income and lower insurance underwriting surplus, partially offset by an increase in net wealth management fee income and higher brokerage income.

Operating expenses rose 2% to RM2.34 billion from a year ago due to a rise in personnel costs and higher IT-related expenses, offset by a decline in office rental and related premises maintenance cost. Cost-to-income ratio stood at 49.6% from 50% for financial year ended Dec 31, 2016 (FY16).

Allowances for impairment on loans and financing was higher at RM312.6 million due to higher collective impairment, partially offset by lower individual impairment. Annualised credit costs for the period was at 26 basis points.

Gross loans and financing grew 3.3% year-on-year and 2.3% for the period to RM158 billion, mainly from mortgages and SME which recorded annualised growth rate of 12.3% and 4.3% respectively.

Customer deposits rose 1.7% to RM168.5 billion while total current and savings account (CASA) grew 7.4%. Loan-to-deposit ratio stood at 93.8%. Gross impaired loans stood at RM3.6 billion while gross impaired loans ratio stood at 2.43%.

The group expects the Malaysian banking sector to see modest growth, with lending momentum expected to improve in the last quarter of the year while also noting the rising pressure on funding cost that may weigh on the performance of banks.

“As we move towards the close of the year, we see stronger pipeline for our core businesses, whilst our balance sheet, liquidity and capital remain strong,” said group managing director Datuk Khairussaleh Ramli.

RHB Bank’s share price fell 1 sen or 0.2% to close at RM4.90 today with a total of 381,700 shares traded.