Sunday, April 28th, 2019


Grab opportunities in US$7t global halal industry, entrepreneurs urged

MELAKA, April 28 — Local entrepreneurs should aim for at least five per cent of the global halal product market, estimated to be worth US$7 trillion, said Entrepreneur Development Minister Datuk Seri Mohd Redzuan Yusof. He said if this could be…

Again, sell in May and go away?

PETALING JAYA: The month of May has always been perceived as “not so positive” for the stock market and the same scenario could be repeated this year.

With the US S&P500 on the verge of overbought territory, profit-taking is possible next month, lending some truth to the financial adage “sell in May and go away”, says Inter-Pacific Securities Sdn Bhd head of research Pong Teng Siew.

He noted that the already subdued FBM KLCI may face more selling pressure next month.

“It is quite possible, I would not rule it out. Coincidentally, the market in the US slipped into what we call ‘overbought territory’. As a result of previous trading action, the market is in bearish divergence mode. Bullish but underlying indicators show a weakening trend,” he told SunBiz.

Pong noted that profit-taking may not always happen in May but, last year, selling in May would have been good advice as the FBM KLCI fell to 1,719.28 points at the end of May from an all-time high of 1,895.18 points in mid-April.

However, historically, the financial adage may not be true, as the index gained in the month of May for several years, between 2011 and 2014.

Foreign funds have been net sellers on Bursa year-to-date, offloading RM2.5 billion net of equities.

Pong, who has been predicting lower levels for the index this year, said it is still in a downtrend currently and expects it to fall even lower than the level recorded in December 2018.

“Corporate earnings are not good because consumer spending did not grow very rapidly, at least not sufficient to give an impetus to corporate earnings. In addition, the ringgit saw a spell of weakness and I hope it doesn’t worsen further,” he said.

He said the overall stock market has been depressive, with sectors such as plantations, finance and telco bringing in weak corporate earnings. The plantations sector weakened year-on-year due to lower crude palm oil prices while the finance sector has not seen strong loan growth.

The telco sector struggled amid heightened competition last year and the weak trend continues this year.

However, Pong noted that Malaysia is currently in a two-tier market and while blue chips are languishing, the performance of small caps has been pretty decent so far this year, and he advised investors to focus on cheaper small caps.

Meanwhile, a fund manager who declined to be named, said that the “sell in May and go away” adage is not applicable in Malaysia, especially among ins-titutional investors.

“News flow matters more. News flow such as the revival of the East Coast Rail Link and Bandar Malaysia as well as the valuations and earnings potential of the stocks matter more than the ‘season’ to buy or sell,” he said.

He believes there is still room for upside in the FBM KLCI in the second half of the year, driven mainly by big contracts being awarded to big companies with spillover benefits for smaller companies.

“Factors that will drive the KLCI would be reactivation of various infrastructure contracts while factors that will hamper the index include weak consumer sentiments, weaker earnings and unexpected turn of events related to decision-makers,” he added.

He advised investors to keep track of company earnings and watch out for news flow of government-related projects, the awards of which will help with the positive sentiments for the respective sector.

OPR cut will have negative impact on ringgit

PETALING JAYA: While market talk is rife that Bank Negara Malaysia could cut its Overnight Policy Rate (OPR) as soon as next week, the central bank should take note of the negative impact of such a move, including the heavy pressure on the ringgit, which may weaken to 4.60 against the greenback.

“There’s a chance that BNM may cut the OPR but I don’t think they should do it. We cannot afford to have a weaker ringgit. Just the talk of a rate cut has already affected the ringgit,” Inter-Pacific Securities Sdn Bhd head of research Pong Teng Siew told SunBiz.

He said fears over the possible exclusion of Malaysian debt from the FTSE World Government Bond Index (WGBI) has already weakened the ringgit over the last two weeks. Recall that on April 15, FTSE Russell said it may drop Malaysian debt from the WGBI, citing concerns about market liquidity.

“The FTSE Russell possibly excluding Malaysia from the bond index has already weakened the ringgit. If BNM decides to cut the OPR, it would wreak havoc on the currency, sending it to 4.60 (against the US dollar),” he added.

FTSE Russell is expected to make a decision in September.

Pong said a rate cut may not be necessary at this point in time, as consumer spending is not strong and he does not expect businesses to embark on major expansions in the current slow growth environment.

Although consumer spending has been reasonably good, he said problems will arise if prices climb because income growth is very slow while the impact of the ringgit would worsen the situation.

“There could be a drop in consumer spending over the next few months if prices rise and ringgit weakens further. But up till March, prices have behaved,” he said.

Pong said these factors, coupled with weak economic growth and impact of the US-China trade tension on trade figures, indicate that the negative impact of a rate cut outweighs the “supposed” positive impact.

“On balance, a rate cut will have negative impact on the economy. Now is not a good time for a rate cut,” he added.

BNM is expected to make a decision on the OPR at the upcoming Monetary Policy Committee meeting on May 7.

Over the past weeks, economists and analysts have highlighted the possibility of a cut in the OPR to 3% from 3.25% currently. BNM has maintained the OPR at 3.25% since January 2018.

PGB continues to provide utility solutions to PAP

PETALING JAYA: Petroliam Nasional Bhd’s (Petronas) subsidiary Petronas Gas Bhd (PGB) has entered into two sales and purchase agreements for 22 years each, with Polyplastics Asia Pacific Sdn Bhd (PAP) to provide utility solutions.

The first agreement is for the supply of steam to PAP, which is a new business secured from the Japan-owned company, while the second agreement is for the extension of the existing electricity supply by PGB.

“The contract extension is a testimony of our customers’ confidence in us to provide a reliable supply of power at a competitive tariff from PGB’s co-generation (COGEN) plant in Gebeng,” PGB managing director and CEO Kamal Bahrin Ahmad said in a statement today.

He said it is also PGB’s aspiration to be a preferred total solutions provider, as reflected by its long-term business relationship with PAP and the other customers based at the Gebeng Industrial Park in Kuantan, Pahang.

Established in 1997, PAP is a wholly owned subsidiary of Polyplastics Limited Company, Japan, and is a multinational company involved in the business of engineering plastics.

“PAP is proud to enter into a long-term agreement with the infrastructure owners, PGB, which signifies a new phase in our journey towards serving our customers,” PAP managing director Yoshimitsu Shirai said.

Both the electricity and steam are generated by PGB’s 350MW COGEN facility, which has been the main driver since 1999, in providing total utilities solutions and offering competitive power and steam tariff to its customers.

Other than Gebeng, PGB also operates similar facilities in Kerteh, to serve the Kerteh Integrated Petrochemical Complex.

In addition to the utilities business, PGB also operates two regasification terminals namely, Regasification Terminal Pengerang located in the Straits of Johor and Regasification Terminal Sungai Udang located in Malacca.

These two regasification terminals have a total combined capacity of 660,000 Nm3 (normal cubic metre), which is among the largest in the region.

Investment in the two regasification terminals signifies PGB’s commitment in supporting the government’s third party access initiative, which aims to allow the Energy Commission’s licensed third-party shippers to bring gas into the country.

MSM starts break bulk shipping of refined sugar

PETALING JAYA: MSM Malaysia Holdings Bhd has commenced its first maiden break bulk shipping of refined sugar from MSM Johor to China, exporting 7,000 tonnes of refined sugar.

Fully commissioned in November 2018, MSM Johor provides an avenue for the group to support domestic demand and further ramp up its export sales at a competitive pricing due to its strategic location at Tanjung Langsat Port.

It is also anticipated to reduce cost across the value chain, with strategic port facilities that contribute towards cost-efficiency as well as reducing reliance on manpower through better technology and automation.

According to the company, break bulk shipping reduces its logistic costs as it requires cargoes to be transported in unitised forms such as crated, bundled or palletised to which its refined sugars are carried in a 1.5 tonnes jumbo bag that ease the process of loading.

Besides that, break bulk shipping also allow goods to directly enter minimally-developed ports as some of them cannot accommodate large container ships.

The break bulk operations through Tanjung Langsat Port’s jetty involves cooperation between MSM Johor and FGV Transport Services Sdn Bhd to synergise group resources effectively.

MSM aims to export more than 300,000 tonnes of refined sugar and other sugar related products potentially to Asia Pacific region under its Business Plan 2019-2021 that includes exporting to Asian markets as part of its priorities to maintain market leadership towards becoming one of the top 10 sugar players in the world by 2020.

However, MSM said it will continue to be selective on export markets with a focus on high premium markets due to the challenging prices as a result of a global sugar glut.

“The break bulk shipping is a part of our new business model which focuses on maintaining cost discipline and operational efficiency in our business activities, which include raw sugar procurement, external warehouse as well as cost for freight, refining and finance. The advantage of our strategic standalone refinery in Johor together with the break bulk shipping initiative will provide an opportunity for us to export our refined sugar at a very competitive price,” said MSM group CEO Datuk Khairil Anuar Aziz.

“With our Johor refinery in place, we have the capacity to fulfil domestic demand and expand our market share on the export front whilst exploring additional revenue stream,” he added.

Khairil, who has been with MSM since November 2017 as the executive director, is taking over the responsibility from Mohd Shaffie Said who assumed the role of acting CEO since January 2018. Mohd Shaffie has been re-designated as group COO effective immediately.

“It comes with a huge responsibility and challenging journey ahead as the sugar industry is forecasted to be more volatile in 2019, in view of the glut sugar situation internationally and locally,” said Khairil, who is also FGV Holdings Bhd COO for sugar sector.

Pump-priming in construction to return

PETALING JAYA: The construction sector’s contract outlook is showing signs of recovery mainly due to the revival of mega projects underpinned by trade deals with China, according to a report by CGS-CIMB.

The revival of the RM140 billion gross development value (GDV) Bandar Malaysia and the renegotiated RM44 billion East Coast Rail Link (ECRL), breaks the slump for megaprojects post 14th general election.

“These announcements signify the gradual return of pump-priming with more private sector driven initiatives given the limited scope for direct government funding. We anticipate more newsflow on new tenders’ outlook in 2H19F,” CGS-CIMB said in its report last week.

The research house’s revised list of potential projects in the pipeline works out to be a total value of RM140 billion, excluding the undisclosed 121 infrastructure project worth over RM13.9 billion, which should proceed following cost renegotiations.

In the medium term, focus remains on the new tender phase for the 40% local content of requirement, valued at RM17.6 billion for the RM44 billion ECRL project, which should benefit rail contractors across the board.

“The mitigating factor among contractors, based on our checks, is that although contracts value could be sizeable, potential subcontracting margin may not be lucrative,” it added.

From its research check, CGS-CIMB estimates that the Dungun-Mentakab portion is unlikely to be subjected to realignment and would proceed to tender rounds in 2H19F.

Based on a revised cost of an estimated RM68.7 million per km, the value of this portion works out to RM13.1 billion to RM13.7 billion. Under a 40% local tender assumption, the addressable tender would amount to RM5.2 billion to RM5.5 billion.

Meanwhile, the reinstatement of the Bandar Malaysia project is positive in the longer term. However, CGS-CIMB noted that a major spillover to local rail contractors would depend on the review of the Kuala Lumpur-Singapore High Speed Rail (HSR) project, which is due in May 2020.

Earlier this month, Prime Minister Tun Dr Mahathir Mohamad said that a high speed train is not really necessary for Malaysia at the moment, especially if it is only within Singapore and Kuala Lumpur. He said that the nation’s focus will be on upgrading the existing rail network.

According to the research house, the participation of domestic rail contractors is likely to be prioritised if the HSR project is revived, similar to what happened with the ECRL.

The initial phase of Bandar Malaysia will feature the construction of a people’s park and 10,000 affordable homes with bumiputra participation throughout the project, and priority for local content in the construction process.

“Assuming a general guideline of 10-15% gross development cost for basic infrastructure works, based on the earlier estimated RM50 billion to RM60 billion GDV for Phase 1, we conservatively estimate that potential value of construction works could range from RM5 billion to RM9 billion,” it said.

Based on these recent developments, CGS-CIMB has upgraded the construction sector to “neutral” from “underweight” previously.

“Reinstatement of selected, if not all, large-scale rail projects indicates a turnaround of the sector’s contract downturn period. However, share prices have re-rated 49% on average year-to-date. At these levels, good news on the ECRL and Bandar Malaysia appears priced in.

“We upgrade the construction sector from underweight to neutral, upside risk is the revival of the HSR and potential review of the MRT3 project,” it said.

Wall St week ahead: Good news from China could boost materials shares

NEW YORK, April 28 — Even as the lift from optimism over prospects for US-China trade detente shows signs of wearing off for the wider US stock market, upbeat sentiment around China’s economy could bolster shares of materials companies. Shares…

Maxis Q1 earnings fall 22% on lower wholesale revenue

PETALING JAYA: Maxis Bhd’s net profit for the first quarter ended March 31 fell 22% to RM409 million from RM523 million a year ago attributable to the decline in wholesale revenue.

The group said in a statement that its wholesale revenue was affected by the termination of the network sharing agreement, continued investment in FibreNation and mobilisation of the enterprise business growth opportunities.

Revenue for the quarter was flat at RM2.23 billion compared with RM2.24 billion in the previous year’s corresponding quarter.

The group has declared a first interim single-tier tax-exempt dividend of 5 sen per share, to be paid on June 27.

Maxis said there are a few key items impacting the group in 2019, including the impact of changes to a major wholesale network sharing agreement in the first and second quarters, dilution in fibre average revenue per user from the new competitive priced plans and the cost of customer migration initiative coupled with the increase in cost to serve.

It also foresees higher cost of business due to the sales and service tax. Maxis maintained its guidance for the financial year ending Dec 31.

Service revenue and earnings before interest, tax, depreciation and amortisation are expected to decline by low single-digit and mid single-digit respectively.

Core network capital expenditure is expected to be around RM1 billion plus capex supporting new growth opportunities in broadband and enterprise business (around RM1 billion over three years) while operating free cash flow (excluding upfront spectrum fee assignment) should remain at a similar level as year 2018.

The group is implementing a change in strategic direction, building on its strong mobile base to deliver its internal annual service revenue target in excess of RM10 billion by 2023.

Strike-hit SAS cancels more than 1,200 additional flights

STOCKHOLM, April 28 — Scandinavian airline SAS cancelled more than 1,200 flights scheduled for Monday and Tuesday as a pilot strike that has already affected tens of thousands of travellers dragged into its third day today. SAS pilots went out on…

Oil industry under pressure to respond to climate change

PARIS, April 28 — The oil industry, under mounting pressure from environmental activists to react more quickly to counter climate change, has begun to adapt its strategy but is struggling to convince critics it is doing enough. Last week…