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Aminvestment: Petronas Chemicals expecting weaker Q3 results

KUAL A LUMPUR, Aug 13 — Petronas Chemicals Group’s net profit for the first half of financial year 2019 (H1 FY2019) dropped 34 per cent in tandem with a 13 per cent revenue contraction, dampened by lower average product prices. AmInvestment in…


RHB gets Bank Negara nod to start insurance unit sale talks with Tokio Marine

PETALING JAYA: Bank Negara Malaysia (BNM) has given the green light to RHB Bank Bhd to begin negotiations with Tokio Marine Asia Pte Ltd for the proposed disposal of its stake in RHB Insurance.

In a filing with Bursa Malaysia, RHB Bank said the approval is valid for six months from July 29, 2019. The bank is looking to sell up to 94.7% of its equity interest in RHB Insurance.

Pursuant to the Financial Services Act 2013, the relevant parties will need to obtain the prior approval of the Finance Minister with the recommendation of BNM, before entering into any definitive agreement for the proposed disposal.

“Accordingly, a detailed announcement on the proposed disposal will be made upon execution of the definitive agreement(s) for the proposed disposal,” said RHB Bank.

Hong Leong Investment Bank (HLIB) Research said the proposed disposal will not have any material impact to RHB Bank’s earnings as the insurance arm only contributes about 2-3% to its bottom line.

“Also, we believe RHB Bank can easily plug the hole through potential bancassurance distribution agreement with Tokio Marine, since they both already have an existing working relationship for life insurance products,” it said in its report today.

It said that the cash proceeds could also be ploughed back into the bank’s commercial banking operations, reinvested in debt securities to generate returns or distributed as special dividends.

According to HLIB Research, the commencement of talks is not surprising, as RHB Insurance is a non-core asset for the bank and talks of disposal had surfaced since 2015-2016.

“Overall, we welcome the potential sale effort considering RHB would then be able to focus more on growing its core banking businesses. That said, details of the deal are limited for now.

“If we were to assume management is capable of fetching 2.35 times P/B for its insurance unit (in line with the historical average M&A transaction involving Malaysian insurers), RHB Bank is poised to book in disposal gains of RM700 million to RM800 million (based on December 2018 data),” it added.

HLIB Research maintained its forecasts and “buy” call on RHB Bank, with an unchanged target price of RM6.45.

“We continue to like RHB for its appealing risk-reward profile given strong CET1 ratio of 16.1% (versus sector’s 13.4%), which allows room to divvy even more; we note that RHB Bank’s current dividend payout ratio of 36% is still below the sector average of 45% (at this level, dividend yield of about 5% would make RHB Bank an even more attractive stock to own),” it said.

On Bursa Malaysia today, RHB Bank was among the top gainers, closing 1.10% or 6 sen higher at RM5.50 on volume of 4.64 million shares.


Wall Street week ahead: Prospect of Fed cut pushing dividend investors into tech, energy

NEW YORK, July 19 — An expected interest rate cut by the Federal Reserve later this month is pushing yield-oriented US fund managers further afield in search of income at attractive prices. While nearly half of the companies in the S&P 500…


MIDF reaffirms ‘buy’ call on TNB

KUALA LUMPUR: MIDF Research has reaffirmed its “buy” call on Tenaga Nasional Bhd (TNB) at an unchanged target price of RM14.40.

In a note today, the research house said dividend yields of 4%, peaking capital expenditure (capex), suggests room for a dividend upside or possible acquisitive growth, while monetisation of backbone fibre asset are key catalysts for the stock.

In a visit to TNB’s large-scale solar (LSS) 1 plants, TNB Sepang Solar (TSS), MIDF Research said that it expects the capex for cables, excluding costs for Right of Way, at RM1 million per kilometre (km).

“While actual capex details are not forthcoming, we estimate the TSS to have incurred a capex of between RM5.5 million to RM6 million per megawatt (MW) or a total of RM275 million to RM300 million as the project cost was locked in circa 2016,” it said.

MIDF Research also said that costs are expected to have come down since then to around RM3 million to RM4 million per MW now and this should be reflected in LSS2 (TNB Bukit Selambau) or LSS3 projects depending on when the costs are finalised.

To recap, TNB via the TSS had won the LSS1 bid to build and operate a 50MW solar plant at a 98.34 hectare site in Kuala Langat, which was leased from TNB at market rates, under a 21-year power purchase agreements.


MIDF reafirms ‘buy’ call on TNB

KUALA LUMPUR, July 19 ― MIDF Research has reaffirmed its “buy” call on Tenaga Nasional Bhd (TNB) at an unchanged target price of RM14.40. In a note today, the research house said dividend yields of four per cent, peaking capital expenditure…


US stocks close at record highs on dovish Fed hopes

NEW YORK, July 4 ― US stocks rose yesterday, with each of the major indexes closing at a record high, as expectations grew that the Federal Reserve would take a more dovish turn as a raft of data provided more evidence of a slowing economy….


No signs of pick-up for Malaysian banking sector

PETALING JAYA: Conditions for the local banking sector are expected to remain challenging in the next six months as there are no signs of pick-up, according to Hong Leong Investment Bank Research (HLIB Research).

The research house sees a moderation in sector earnings growth to 2.6% in 2019 from 7.0% in 2018.

HLIB Research said with the US Federal Reserve sounding even more dovish in recent weeks, Bank Negara Malaysia may follow suit and lower the Overnight Policy Rate (OPR) again.

“On a full-year basis, we estimate that every 25 basis points (bps) reduction in OPR would see sector NIM (net interest margin) slipping 3-4bps and our profit forecast falling by 2-3%; from our sensitivity analysis, Alliance and BIMB would lose most if interest rate falls while Affin and AMMB are least affected.”

Despite that, the research house draws comfort from the sector’s strong asset quality and capital position, thus it advised long-term investors who strongly favour sector exposure to be selective.

“Our preferred pick is Maybank for its above-average dividend yield and low foreign shareholding level versus larger domestic peers. Other ‘buy’ ratings are RHB and Alliance.”

HLIB Research warned that the market has not priced in another OPR cut which, therefore, makes banking stocks susceptible to fresh sell-downs. “Thus, this presents a short-term underperformance risk.”

It said the Financial Services Index clocked gains of 3% in the first two months of 2019 but it was quickly erased in the following three to four months, due to the OPR cut, potential removal from FTSE World Government Bond Index and broad negative impact from escalating US-China trade angst.

“However, there were positive outliers like BIMB and RHB which saw their share prices rise by 28% and 8% in 1H19 respectively; the former saw strong showing at its takaful operations while the latter was lifted by good fundamentals and higher dividend payouts.”

The research house said banks were off to a humble start (whereby first quarter 2019 sector pre-provision profit was down 2% year on year) and the second quarter is expected to be challenging as the OPR was cut by 25 basis points in early May, putting strain on short-term net interest margin.

It also sees tapering loan growth and lacklustre non-interest income, considering the softer macro climate today.

HLIB Research expects the sector’s return on equity to drop by 20 bps to 10%, dragged down by the faster uptick in net credit cost of 24bps in 2019 (17bps in 2018).


European shares hit two-month high as EU picks Lagarde to head ECB

BRUSSELS, July 3 — Hopes that European Central Bank Chief nominee Christine Lagarde would follow the dovish steps of Mario Draghi pushed European shares to a two-month high today, and boosted high-dividend yielding defensive stocks. If approved by…


PNB’s assets under management breaches RM300b mark for the first time, says Zeti

KUALA LUMPUR, June 24 — Permodalan Nasional Bhd’s (PNB) assets under management (AUM) has breached the RM300 billion mark for the first time, recording RM301.4 billion in the first half of 2019, says Group Chairman Tan Sri Dr Zeti Aziz. It is an…


High valuations, slow earnings in equity market

KUALA LUMPUR: The Malaysian equity market is seeing more expensive valuations and slower earnings growth compared with its regional peers, according to HSBC Private Banking managing director and chief market strategist for Asia, Fan Cheuk Wan.

“Within our Asia equity portfolio, we’re still cautious on the Malaysian equity market mainly because of its expensive valuations versus the other cheaper regional peers. The earnings growth forecast for the Malaysian equity market still remains at single-digit, lagging behind other higher growth equity markets that we favour, such as China.

“For Malaysia, we forecast single-digit earnings growth but with the valuation premiums versus the regional’s average, it would cap the upside potential of the Malaysian equity market,” she told a press conference on the HSBC Private Banking 2019 2H Investment Outlook in Asia today.

Reflecting on Asian equities, it maintains a mild overweight position on China and Singapore. Fan said Singapore is the cheapest market in Asean and it has the lowest price-to-earnings and the highest dividend yield.

“Based on our year-end forecast, we still expect the FBM KLCI to come in at 1,740 points this year, some modest upside potential because the economy still remains resilient and there will be modest earnings growth for this year. In terms of the upside potential, there are cheaper markets that can deliver more upside,” elaborated Fan.

Nevertheless, HSBC Private Banking chief market strategist for Southeast Asia James Cheo still expects a 3-4% upside in the equity market.

“How we want to play it is to look at the domestic sectors. The consumption and infrastructure plays are where we think the opportunities are, and how it pans out could be end of this year or next year,” Cheo said.

On the ringgit, he said in the near term, there could be a risk-off where there will be more demand for the dollar given the uncertain environment.

“The domestic economy in Malaysia is still resilient so it reduces the downside for the ringgit. The ringgit could still be fairly resilient against the dollar,” said Cheo, adding that its year-end target for the ringgit is RM4.30 against the US dollar.

On Malaysia proposing a new currency based on gold, Cheo said it is an interesting idea but noted that there are trade-offs and that it should be thoroughly considered.

“It’s an international monetary system and just can’t be implemented on a single country. It requires a global consensus. Given how things are, it looks like things are more bilateral nowadays.

”We have been on a fiat currency model for many years and it has served us well. Our money supply has been growing significantly,” said Cheo.