Thursday, January 3rd, 2019


Yen’s surge is a red flag for world markets

LONDON, Jan 3 — A gradual rise by the Japanese yen in recent weeks culminated in a dramatic overnight surge—firing a warning shot for world markets and the global economy in 2019. Historically, outsized yen gains in short periods, such as the…

Apple tumbles as US stocks resume retreat

NEW YORK, Jan 3 — Shares of Apple plunged at the start of trading today, weighing on the broader market after the tech giant cut its sales forecast due to weakness in China. About 12 minutes into trading, the tech-rich Nasdaq Composite Index fell…

China dismisses Africa debt fears at start of FM tour

ADDIS ABABA, Jan 3 — Chinese Foreign Minister Wang Yi played down concern over Africa’s debts with Beijing today as he arrived in Ethiopia at the start of a four-nation Africa tour. China has funnelled cash and loans into infrastructure projects…

Gove: No-deal Brexit would hit Britain’s farmers, food firms hard

OXFORD, England, Jan 3 — Britain’s farmers face rising costs if the country leaves the EU without a deal as export tariffs kick in and border inspections slow traffic through ports, Farming and Environment Minister Michael Gove said today. Gove,…

Bristol-Myers bulks up cancer portfolio with US$74b Celgene deal

NEW YORK, Jan 3 — Bristol-Myers Squibb Co said today it would buy Celgene Corp for about US$74 billion (RM306.7 billion), creating a major pharma company with several blockbuster cancer drugs as competition in the immunotherapy space heats up….

Malaysian economy likely to bottom out in Q2, says AmBank Research

PETALING JAYA: AmBank Research, which anticipates further pressure on Malaysia’s economic growth in the first quarter of the year (Q1 2019), believes that gross domestic product (GDP) growth should register slight improvement in the second quarter and pick up thereafter.

This is partly attributable to the low base effects as well as support coming from domestic activities and foreign direct investments, and complemented by exports as the electronics cycle slows down, added with softer commodity prices, it said in a note today.

The research house said it foresees growth prospects remaining weak, anti-cipating Q4 2018 GDP growth to ease to around 4% to bring the full-year growth to 4.6%.

“With our base case GDP outlook for 2019 at 4.5% with the upside at 4.8%, we foresee further weakening pressure on growth in Q1 2019,” it added.

Malaysia’s third quarter GDP growth moderated to 4.4%, bringing about a nine-month expansion of 4.7%. Bank Negara Malaysia is due to announce Q4 GDP figures on Feb 14.

AmBank Research highlighted that the strong foreign approved investments amounting to RM48.8 billion as of Q3 2018, which is an all-time high, is expected to support growth in 2019.

The growth drivers are seen coming from petroleum refineries with RM17.2 billion investment being approved, followed by electrical and electronics (RM10.2 billion), basic metal products (RM5.7 billion), chemical and chemical products (RM4.6 billion) and rubber products (RM3.5 billion).

Additionally, it said, agriculture, mining, and plantation and commodities saw a notable increase in approved investments with 54 projects as of Q3 2018, compared with 48 projects in 2017.

Furthermore, investments in the services sector will continue to boost growth largely coming from local players with RM60.4 billion approved investments compared with RM96 billion in 2017, while foreign investments remained muted at RM9.5 billion as of Q3 2018 from RM28.5 billion in 2017.

Commenting on the slump in the Nikkei Malaysia Manufacturing Pur-chasing Managers’ Index (PMI), AmResearch said it indicates downside risks with overall demand to be weak, thus causing companies to become less willing to hold stocks.

The headline PMI fell to a six-month low of 46.8 in December 2018 from 48.2 in the previous month. The demarcation between expansion and contraction is 50.

The data points to the sharpest deterioration in the health of the goods-producing sector since May. It also extended the current period of decline to two months. The drag largely came from severe reductions in production and new businesses.

Outlook for local banking sector remains challenging: Kenanga Research

PETALING JAYA: The banking sector’s outlook is challenging due to external concerns while clarity and direction on the domestic front remain murky, according to Kenanga Research, which maintained a neutral stance for the sector as no fundamental change is expected, and the sector lacks concrete catalysts.

“We view the industry with caution as uncertainties and headwinds still prevail. The industry remains unexciting, dragged by moderate loan growth and soft capital markets. Prevailing negative sentiment both globally and domestically will continue to drive volatility and uncertainty in the industry. Caution will still prevail due to the soft economy outlook globally,“ the research house said in a note today.

It said banks with healthy asset quality (hence low impairment allowances) will still be the favour due to their defensive quality.

“As such, selective asset growth will still be the focus for the banks. Despite stable economic outlook in the domestic environment coupled with low unemployment, we opine that cautiousness and selective assets growth will still prevail in the industry,“ Kenanga Research explained.

It said loan growth moving forward will still be moderate as uncertainties prevail with fee-based income expected to be soft as a result of the volatile capital market. However, with the stable outlook, this will support a moderate and stable credit charge for the industry.

“We expect impairment allowances (credit costs) to be stable and consistent (as it had been generally in 2018) which will lend support to the banks’ bottom line. We do not discount another potential up-cycle of impairment allowances, especially those highly exposed to the energy sector (CIMB, Maybank and RHB Bank) as energy prices have been under pressure due to the perceived economic slowdown both domestically and globally.”

Kenanga Research expects mild compression for net interest margin (NIM) as most of the banks’ loan-to-deposit ratio and loan-to-fund ratio are over 90% and 80%, respectively, as compression will be mitigated by soft credit demand. The deferment of NSFR (net stable funding ratio) into 2020 plus the absence of high credit demand will support the outlook for a stable to mild compression in NIM.

“However, looking at the slowing momentum in household demand, we do not discount the likelihood of competitive lending rates in the short term as banks strive to achieve their loan growth target. This competition will ultimately lead to further downside pressure on NIM.”

The research house has revised downwards the 2018/2019 earnings estimates by 80bps/30bps to +6.7%/+5.6% respectively.

“For 2019, earnings are slower at +5.6% year-on-year (yoy) as we based from these assumptions of credit charge at 0.33%; and slight compression on NIM by 3bps and a higher pace from fee-based income (+6.6% yoy due to a lower base).”

It also toned its outlook on loan growth for FY18 at +4.7% (from +4.9% previously) on account of revision of prevailing headwinds.

Kenanga Research reiterated its outperform call for BIMB Holdings Bhd, as its financing portfolio (70% of total financing) is skewed towards household (75% first-time buyers for residential property) with focus on growing its personal financing will minimise NIM compression.

Another preferred pick is Malaysia Building Society Bhd (MBSB), which is expected to achieve 3-4% growth driven by corporate loans/financing as another RM950 million is expected to be disbursed in Q4 18.

AMMB disposing of non-performing loans

PETALING JAYA: AMMB Holdings Bhd’s (AMMB) wholly owned subsidiaries AmBank (M) Bhd and AmBank Islamic Bhd are disposing of their non-performing loans/financing along with all interest, rights, benefits and entitlement to Aiqon Capital Group Sdn Bhd’s special purpose vehicles (SPV) for an aggregate amount of RM553.91 million.

The proposed disposal is part of the debt recovery strategy of Ambank and Ambank Islamic to strengthen their loan and financing management, resolution process and to monetise the portfolio. The proceeds from the disposal will be used for general working capital purpose within a year of completion of the exercise.

AMMB told the stock exchange that its units had signed two separate sale and purchase agreements in relation to the disposal with Aiqon Amanah Sdn Bhd and Aiqon Islamic Sdn Bhd, respectively.

The Aiqon SPVs are established as the special purpose vehicles to purchase and manage the portfolio. The shareholders of Aiqon Capital are Zetovest Sdn Bhd (50%) and Kurnia Quantum (50%).

It is a related party transaction by virtue of the Aiqon SPVs being companies controlled by a person connected to a director and major shareholder of AMMB.

The headline purchase price comprises RM428.11 million for the Ambank portfolio and RM125.8 million for the one of AmBank Islamic.

The portfolio consists of 537,068 accounts and is fully written off in the books of AmBank and AmBank Islamic. It comprises customers who are individual and corporation borrowers, including debt and financing owed by sole proprietors, partnerships, individual guarantors for corporations and small and medium enterprises.

These are for products such as industrial hire purchase, small and medium industry loans and financing, auto financing, mortgage, personal loan/financing under cooperative and credit cards.

AMMB said the headline purchase price falls within the valuation range of RM450 million to RM570 million for the portfolio as appraised by KPMG Corporate Advisory Sdn Bhd, the financial adviser to AmBank and AmBank Islamic.

Barring any unforeseen circumstances, the proposed disposal is expected to be completed by March 31, 2019.

AMMB gained 0.46% to close at RM4.33 today with 1.25 million shares done.

Look to Singapore, Sarawak for construction jobs, says HLIB

PETALING JAYA: Contractors should look to neighbouring Singapore and Sarawak for jobs, as a slowdown in award of contracts is expected in 2019, according to Hong Leong Investment Bank (HLIB).

The research house said in a note that contract flows are expected to slowdown on the back of slight year-on-year (y-o-y) decline of 0.4% in development expenditure to RM54.7 billion.

For the cumulative period of 12 months, domestic and foreign contract awards amounted to RM18.3 billion and RM406 million, representing a y-o-y decrease of 37% and 85% respectively. Contract flows continue to slow down after a brief rebound in Q3 18 as the government re-prioritised major infrastructure projects.

HLIB said foreign contracts (piling works) from Singapore amounted to RM148 million in Q4 18, which is an indication that civil infrastructure projects remain robust in Singapore. HLIB expect more domestic contractors to bid for foreign jobs especially in Singapore given its geographical proximity and the continued slowdown in the domestic construction landscape.

It expects contractors under its coverage such as Gamuda, Kimlun and Sunway Construction to compete for jobs there.

“We expect smallish basic infrastructure projects such as road upgrading, hospital, water, sewerage and rural area development projects will be rolled out by government this year which we believe is insufficient to spark any enthusiasm back towards the sector. However, we do not discount potential events such as award of Phase 2 of Klang Valley Double Track project (RM5 billion) and news flow on ECRL (possible revival) and Pan Borneo Sabah could alleviate the pessimistic sentiment towards the sector,” it added.

While the job flows in Peninsular Malaysia looks lacklustre following the change in government, Sarawak appears to have prospective jobs offers.

“We understand that industry players are aiming for jobs in Sarawak as its chief minister mentioned emphasis will be put on state water and rural road projects following the decision to shelve Kuching LRT project,” it said.

Funding for those projects is expected to come from the Sarawak state reserve of RM31 billion which is likely to insulate the projects from risk of cuts in federal government spending. The call for bids for the Sarawak Coastal Road and Second Trunk Road which has an estimated combined value of RM11 billion are expected in the near term.

In that light, HLIB maintains a “neutral” call on the construction sector post changes in federal government and the scrapping of mega rail projects.

“The domestic construction industry landscape is expected to remain challenging and we do not expect a significant improvement in the near term. The 37% decline in domestic contract awards in 2018 supports our view,” it added.

Nonetheless, high orderbook levels (average cover ratio of 4.5 times) following the robust job flows in the past two years coupled with rock bottom valuation (0.5 times price-to-book ratio) should cushion further downside amid subdued near term industry prospects.

CIMB lends a hand to sole proprietors, partnerships

KUALA LUMPUR : CIMB Bank Bhd and CIMB Islamic Bank Bhd have garnered 12 business partners to work together to provide exclusive offers and special rates for various business solutions anchored on five pillars, namely banking operation account; payment, collection and courier services; funding and support; work space and connectivity; and digital solutions.

The CIMB Sole Proprietor & Partnership proposition has been introduced recently to offer a full suite of solutions for sole proprietors and partnerships to make starting and running a small business more smooth and hassle-free, the bank said in a statement today.

The 12 partners are Digi, Exabytes, ARMS, Billplz, NEXT Academy, Dojo, Genius POS, EasyParcel, EasyStore, Exabytes Digital, Nomad and Sandbox.

Customers of the bank will have exclusive access to specially priced or packaged solution electronic payments, point-of-sale software and services, logistics and co-working space, to marketing and branding, web connectivity and e-commerce.

“97.7% of Malaysia’s SME businesses are in the small and micro enterprise category, and every year, 260,000 new start-ups are registered. Starting a business is exciting, but operationalising it can be overwhelming, and this is where the CIMB Sole Proprietor & Partnership proposition helps our customers on kick starting and running their enterprise, so that they can really focus on producing and marketing their great products and services,” said CIMB group CEO of group consumer banking Samir Gupta.