Sunday, October 21st, 2018


US’s Mnuchin says it will be harder for Iran oil importers to get waivers

JERUSALEM, Oct 21 — US Treasury Secretary Steven Mnuchin said today it will be harder for countries to get waivers on Iran oil sanctions than during the Obama administration and dismissed concerns that oil prices could rise, saying the market had…

Govt urged to focus on reducing operating expenses

PETALING JAYA: Local economists, analysts and a think tank have urged Prime Minister Tun Dr Mahathir Mohamad's administration to focus on reducing the government's operating expenditure, which has been persistently high over the years.

The view comes after Mahathir's presentation on the 11th Malaysia Plan's mid-term review in Parliament last week, which saw the government cutting back its development budget by RM40 billion for the 2018 to 2020 period.

The government, which affirmed that the operational budget will not take a hit, lowered its real gross domestic product (GDP) growth target to 4.5-5.5% annually from 5-6% previously.

Inter-Pacific Securities Sdn Bhd head of research Pong Teng Siew, when contacted, told SunBiz that the operating expenditure related to emoluments, pension payments and gratuities rose more than 9% a year in the past 10 years, while nominal gross domestic product rose just more than 4% over the same period.

He noted that the cut in development expenditure is possibly due to the administration's short-term inability to reduce its operating expenditure without public sector layoffs.

CGS-CIMB Research said it believes the government has room to make fiscal adjustments through determined spending cuts without hurting the country's growth prospects unduly if wastages and leakages are curbed.

It opined that operating and development expenditure can be trimmed by RM7 billion in Budget 2019 due to tighter procurement procedures, zero-based budgeting, reviews or deferment of infrastructure projects, more targeted subsidies and cash transfers, and revisions in supply and services contracts, which could limit the need for aggressive revenue-raising measures and steeper cuts to productive areas of spending.

On GDP growth, CGS-CIMB said despite the target being lowered to 4.5-5.5% in the mid-term review, prospects remain supportive of economic activity and labour market conditions.

Disappointed by the government's preoccupation with tax and increasing costs for business, Institute for Democracy and Economic Affairs director of research and development Laurence Todd said “there are indications that the government is moving in potentially the wrong direction”.

“Further reforms to strengthen the oversight and performance of GLCs are of course welcome, but it is disappointing that the government does not seem to be proposing more radical reforms, including significantly reducing its holding of assets and equities, which could raise revenue and stimulate private sector growth.

“At the same time, the government is proposing to reduce development expenditure – we would recommend that the government focus on improving its balance sheet in a way that raises revenue and maintains the overall level of public investment,” Todd added.

On the flip side, Sunway University Business School Professor of Economics Prof Dr Yeah Kim Leng said the mid-term review, with a strong focus on improving governance, institutional reforms and strengthening the government delivery system, should enable the government to reap some “democracy dividends” on increased investor confidence and sustained private investment activities.

He said the review has lent greater clarity on the policy direction of the new government over the next two years as it has established the priorities, policy thrusts, strategies and targets on what the administration intends to do to address the critical challenges facing the country.

“Understandably, the 'how' part needs fleshing out but it suffices that the focus should be on implementation capacity and capabilities, and, importantly, a consultative approach with all stakeholders especially the private sector, industry groups and NGOs.”

However, he pointed out that income gaps, disparities and inequalities across regions, industries and community groups are structural problems, which will require carefully thought-out intervention programmes.

“These are perhaps too 'micro' to be contained in the broad five-year plan and better fleshed out by the implementing agencies that have been streamlined,” Yeah said.

11MP mid-term review unlikely to excite equity market: MIDF Research

PETALING JAYA: The mid-term review of the 11th Malaysia Plan is not enough to excite the equity market in the near term as it provides no material surprises that may spur significant buying interest, according to MIDF Research.

The research house has made no changes to its earnings forecasts as well as target prices of companies under its coverage.

“Furthermore, in so far as the broad market reaction is concerned, the benchmark FBM KLCI (FTSE Bursa Malaysia KLCI) was hovering within a narrow trading band (both before and after the 11MP-MTR reading in Parliament) and ended the day marginally lower by -0.15% to close at 1,738.01 points,” it said in a report on Friday, referring to Thursday's closing.

On Friday, the FBM KLCI closed 0.34% lower at 1,732.14 points.

Additionally, the research house said it expects the short-term market undertone to continue to be dominated by the prevailing vagaries on Wall Street as well as other external developments, particularly the ongoing US-China trade spat.

However, MIDF Research stressed that the mid-term review's objectives of fiscal consolidation while ensuring more inclusive economic growth are of long-term strategic importance to the nation's well-being, particularly on Malaysia's sovereign credit rating and country risk, global investors' confidence and the government's continued ability to provide adequate backstops during economic downturn.

Therefore, it said, over the long term, lessening sovereign and country risks which attract a lower required return would naturally drive market valuation market.

MIDF Research reiterated its FBM KLCI year-end 2018 target at 1,800 points, which equates to PER18 of 16.6 times. It also reiterated its FBM KLCI year-end 2019 target at 1,900 points, which equates to PER19 of 16.7 times, a slight discount to its multi-year (2010-17) mean of 16.8 times.

On a separate note, FXTM research analyst Lukman Otunuga said there will be an extra focus on the nation's macro fundamentals following growth downgrades in the mid-term review and by the World Bank.

He said the ringgit is likely to remain pressured by external risks, including trade disputes, global growth fears and prospects of higher US interest rates.

He added that global sentiment is expected to remain fragile in the week ahead as investors juggle with trade tensions, growth fears, Brexit-related uncertainty and geopolitical tensions.
The ringgit closed at 4.16 to the dollar last Friday.

Foreigners sold net US$1.1b of Saudi stocks in week to Oct 18

DUBAI, Oct 21 — Foreigners sold a net 4.01 billion riyal (RM4.45 billion) in Saudi stocks in the week ending October 18, exchange data showed today — one of the biggest selloff since the market opened to direct foreign buying in mid-2015. The…

Petronas’ Oman unit to buy 10% stake in Al Khazzan gas field

KUALA LUMPUR: Petroliam Nasional Bhd (Petronas) said today its subsidiary would buy a 10% stake in Oman's Al Khazzan gas field, following a bidding exercise held by the exploration arm of state-owned Oman Oil Co.

The Petronas unit, PC Oman Ventures Ltd, would acquire the stake in Block 61 of the field, which is expected to produce around 1.5 billion cubic feet of natural gas per day by 2020.

“Completion of the transaction is subject to closing conditions,” Petronas said in a statement.

“Further information will be made available, as and when appropriate.”

Oman Oil Company Exploration and Production (OOCEP) said in a statement on Twitter that the sale was “subject to approval from the Sultanate of Oman's government and other closing conditions”.

OOCEP holds a 40% stake in the block, while Britain's BP holds the remaining 60%. – Reuters

Cloudy outlook for construction

PETALING JAYA: The outlook for the construction sector remains cloudy, with muted impact from the 11th Malaysia Plan (11MP) mid-term review, said analysts.

“Given the government’s intention to consolidate its fiscal position, we are of the view that the sector outlook will remain cloudy in the interim owing to the lack of near term catalysts,” said PublicInvest Research in its report.

The construction sector reported an average growth of 7.1% annually in the first half of 2018, lower than the initial target of 10.3% per annum, and is projected to grow even slower in the remaining period at an annual average rate of 4.3%.

PublicInvest Research said it is not surprised with the revised projection as slower growth for the next two years is a reflection of the government’s re-prioritisation of major infrastructure projects.

“The mid-term review of the 11MP threw up no surprises with regard to the construction sector, with guidance of lower growth going forward and reduction in development expenditure among key highlights, though already largely anticipated,” it said.

A few years back, the construction sector was a notable contributor to national growth but this time round, a number of mega projects valued in excess of RM100 billion have been put on hold for further assessment and negotiation.

“Concentration will now be re-prioritised toward the building of affordable housing, public schools and hospitals, as well as improving infrastructure and road network in rural areas,” it added.

It noted that ongoing major highway projects such as the West Coast Expressway and Pan Borneo Highway will proceed as planned while rail projects namely MRT2 and LRT3 will proceed albeit with some delays.

“With negative news flows continuing to swirl around the sector, earnings visibilities are also coming into question now, in addition to inevitable margin squeezes. All said, we maintain our neutral rating on the sector but with a negative bias.

“Re-rating will come from the other big ticket projects getting back on the table, or from new ones not previously accounted for,” it said.

CGS-CIMB said the 11MP mid-term review barely touched on new large-scale projects but emphasised more on what is left on the table, following the review of almost all mega contracts.

However, a slight positive from the prime minister’s speech is that the public-private partnership model will be beefed up in contract procurement.

“We understand that this could take the form of pure cash contracts or land swap deals. This is most relevant to selected small/medium-sized contractors, but we believe the tender environment will be very competitive (oversupply of idle capacity players) and hence unlikely to appeal to all large contractors. Clear proxies for this new angle remains limited, sector wide,” it said in its report.

Outside of the Klang Valley, the 11MP will focus on rural roads, 400 schools to be built or refurbished, rural water infrastructure in Sabah and Sarawak, flood mitigation, airports and affordable housing.

Within the Klang Valley, only the ongoing progress of seven projects will be prioritised namely MRT2, LRT3, Sungai Besi-Ulu Kelang Expressway, Damansara-Shah Alam Highway, Putrajaya-KLIA Highway, Digital Free Trade Zone and River of Life.

“11MP mid-term review provided more clarity on Malaysia’s contract outlook and the government’s stance on contract rollout. We see muted impact on the overall sector, with no upside surprises in new contracts,” said CGS-CIMB.

It maintained its “underweight” rating on the sector, predicated on the sector’s job downturn in 2019, with revival of deferred or cancelled mega rail contracts being an upside risk.

EU’s Barnier plays down ‘backstop’ checks on Northern Irish trade

PARIS, Oct 21 — The EU’s chief Brexit negotiator Michel Barnier stood firm on the need for checks on goods shipped from mainland Britain to Northern Ireland after Brexit, while insisting this would not amount to a new border, in an interview…

Market value of MyEG, Datasonic dives in wake of charges against Zahid

PETALING JAYA: MyEG Services Bhd, which lost almost a quarter of its market value before trading in its shares was suspended last Friday, said it received written confirmation from the Malaysian Anti-Corruption Commission (MACC) that the company and its board of directors are not under investigation, and is not a party to the investigation leading to charges against former deputy prime minister and home affairs minister Datuk Seri Ahmad Zahid Hamidi.

Last Friday, Zahid pleaded not guilty to 45 charges of criminal breach of trust, accepting bribes and money-laundering amounting to RM114.15 million. Three of these charges were for bribery, whereby Zahid allegedly accepted a total of RM8.25 million from Mastoro Kenny IT Consultant & Services as inducement to assist in securing MyEG projects handled by the Home Affairs Ministry.

The stock fell 24.67%or 37 sen to RM1.13 last Friday prior to the announcement. Some 97.77 million shares were traded, making it the third most active stock.

Datasonic Group Bhd lost a third of its market value, after the charge sheet against Zahid mentioned the group, alleging that its deputy managing director Chew Ben Ben paid a total of RM6 million to Zahid for the additional supply of passport chips for five years, or 12.5 million chips, by Datasonic Technologies Sdn Bhd.

Datasonic, however, denied issuing any payment to Zahid in relation to the supply of 12.5 million chips for Malaysian passports.

It further stated that it was awarded the supply of 12.5 million chips on Dec 15, 2015 based on value proposition of enhanced chips security (to put the chips bonded into the polycarbonate datapage instead of the back of the passport cover) and 15% lower pricing compared to the previous vendor’s, that provided savings of RM56.25 million to the government over five years.

The group closed 30.2% or 21 sen lower at 48.5 sen on Friday on some 125.85 million shares traded, making it the second most active stock of the day.

National entrepreneur development policy on the way

KUALA LUMPUR: The Ministry of Entrepreneur Development (MED), which was set up on July 2, 2018, is formulating an inclusive and competitive National Entrepreneurship Policy following the tabling of the mid-term review of the 11th Malaysia Plan by Prime Minister Tun Dr Mahathir Mohamad last Thursday.

In a statement today, the ministry said this is a new agenda in the comprehensive and integrated development of entrepreneurs, with a focus on the B40 income group and social entrepreneurs and aimed at uplifting the people’s standard of living.

“More details on the policy will be announced in the middle of November 2018,” the ministry said, adding that several strategic clusters have been identified including financing, training, cooperative, data base, operation/rationalisation and international issues.

The process includes a review of the legal and entrepreneurship policy framework, strengthening entrepreneur/cooperative governance, market expansion, rationalisation of entrepreneur development agencies, and a new financing mechanism that is more dynamic and open, it said.

“MED will come up with a strategic plan to rationalise and refocus all functions and roles of entrepreneur development programmes in order to support the nation’s economic agenda and create a conducive and integrated entrepreneurship ecosystem,” it added. – Bernama

Italy should not ignore damage to banks from soaring bond yields, official tells paper

MILAN, Oct 21 — Italy’s government should not ignore the problems that soaring government bond yields are causing for Italian banks, including possible capital needs, Cabinet Undersecretary Giancarlo Giorgetti said in a newspaper interview…