cash flow


Local stocks skid on debt risk, fresh US-China trade tensions

PETALING JAYA: Malaysian stocks skidded 2.21% today – the steepest decline among markets in the Asian region – on renewed trade tensions between the US and China as well as concern over rising public debt in the country.

The FBM KLCI tumbled 40.78 points or 2.21% to close at its intraday low of 1,804.25 points after heavy selling emerged in the afternoon session, just 4.25 points shy of the 1,800-point psychological level.

A total of 2.69 billion shares valued at RM3.34 billion changed hands. Market breadth was negative with 763 losers against 237 gainers.

Among the top losers were Dutch Lady Milk Industries Bhd, Panasonic Manufacturing Malaysia Bhd, Ajinomoto (M) Bhd and Axiata Group Bhd, which fell 96 sen, 68 sen, 64 sen and 64 sen, to RM69.02, RM38.94, RM22.90 and RM4.43, respectively.

The trading/services index contracted 2.77% while the industrial index eased 2.23%.

On the currency front, the ringgit weakened 0.3% to 3.9790 against the US dollar as at 5pm today.

Asian stock markets were mostly in the red, with Hong Kong seeing a decline of 1.82%, followed by Singapore and Tokyo, which fell 1.32% and 1.18% respectively, after US President Donald Trump's remarks on Tuesday that he was not happy with the latest round of trade talks with China, just a couple of days after both countries agreed to put their trade dispute “on hold”.

On the local front, the equity market was also dragged down by an announcement by Prime Minister Tun Dr Mahathir Mohamad that the country's debt level has hit RM1 trillion, or 65% of gross domestic product (GDP), and not 55% of GDP as presented by the previous government.

JF Apex Securities head of research Lee Chung Cheng said besides the external trade war factor, local investors were jarred by the high level of national debt, which may weigh on Malaysia's sovereign credit ratings.

Following that, he does not expect net foreign fund inflows to happen anytime soon. “Foreign funds will continue to remain on the sidelines until more clarity from the new federal government,” he told SunBiz.

Areca Capital Sdn Bhd CEO Danny Wong Teck Meng said the market is closely monitoring how the government will address the debt issue in order to maintain credit ratings.

He highlighted that it will be crucial to see the introduction of measures to contain the fiscal deficit to GDP below 3%, in the next two to three weeks.
“Over the short term, people see what will happen and the government's ability to tackle the removal of GST, toll charges and subsidies. They're waiting for more clarity on how to cushion the cash flow problem.”

International rating agencies have warned that the GST removal is “credit negative” for Malaysia with revenue loss to the government, citing that the country should not be too dependent on the current high oil prices.

Auditor raises doubt over Perak Corp’s ability to continue as going concern

PETALING JAYA: Perak Corp Bhd’s independent auditor Messrs Ernst & Young has raised concern over the company's ability continue as a going concern due to its losses and liabilities.

Perak Corp incurred a net loss of RM340.6 million for the year ended Dec 31, 2017, with its current liabilities exceeding current assets by RM158.5 million.

In order to address the material uncertainty, it said the management will continue to negotiate with the banks with the view of restructuring the terms of the syndicated term loan; dispose of certain land for cash to meet any payment obligation should the need arise; ultimate holding corporation will continue to provide financial assistance; focus on cost saving and stringent cash flow management to remain competitive.

Meanwhile, Perak Corp announced a widened net loss of RM11.45 million for the first quarter ended March 31 compared with RM6.79 million in the same period a year ago, due to higher operating expenses and finance costs.

However, its revenue soared 54.8% to RM48.15 million from RM31.11 million.

In a separate filing with the stock exchange, Perak Corp disclosed that its settlement agreement with Perak Equity Sdn Bhd (PESB) has yet to be completed after five years due to the non-fulfilment of certain conditions.

The agreement was entered on Feb 28, 2012 to partially settle the total debt owing by PESB to Perak Corp by way of set-off against the total purchase sum of RM70.27 million for two properties to be acquired by Perak Corp from PESB.

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Analysts maintain ‘buy’ call on SP Setia

PETALING JAYA: Analysts are neutral on SP Setia Bhd’s privatisation agreement with Kuala Lumpur City Hall (DBKL) for land in Cheras in return for the development of the Quality Sustainable People Housing (QSPH) project there, maintaining their ‘buy’ calls on the stock.

MaybankIB Research said it is neutral on SP Setia’s latest land deal in Cheras, and maintained its earnings forecasts and RM3.79 target price on SP Setia with a ‘buy’ call.

“While it is strategically located in the fringe of city centre, we are concerned on its planned development amid an overcrowded high-rise property segment. Also, SP Setia can only start launching post the completion of QSPH phase 1 (within 48 months), putting on financial stress on its cash flow in the near term.”

RHB Research Institute maintained its ‘buy’ rating on SP Setia’s recent share price weakness, but trimmed its target price to RM3.34 from RM3.88, offering an 11% upside from its last closing price.

RHB kept its earnings forecasts unchanged, as SP Setia would likely kick-start the project at the land for exchange after four years, earliest in 2023-2024.

“Despite the incremental value to our RNAV (realised net asset value) estimate, we decrease our target price as we remain cautious on the property market after the impending general election,” said RHB.

PublicInvest Research maintained its ‘outperform’ call on SP Setia with unchanged target price of RM4.50, pending more clarifications.

“We still favour SP Setia for its sizeable and well located landbank, consistent performance, good earnings visibility and decent dividend yield,” it said.