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PublicInvest Research

Author: PublicInvest   |   Latest post: Thu, 17 Oct 2019, 8:57 AM

 

PublicInvest Research Headlines - 10 Sept 2019

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Economy

Global: Trade uncertainty to trim USD850bn global output – Fed paper. Trade paper uncertainty driven by the Trump administration’s escalating dispute with China means hundreds of billions of dollars in lost US output and as much as USD850bn lost globally through early next year, research published by the Federal Reserve suggests. The Fed researchers analyzed newspaper articles and corporate earnings calls to estimate trade policy uncertainty, finding it has recently “shot up to levels not seen since the 1970s.” The Fed researchers then estimated the blow such uncertainty delivers to economic activity, as businesses pull back on investment and production. They concluded that globally and in the US, its impact is around 1% to GDP. (Reuters)

US: Employment rises less than expected in August. Employment in the US increased by less than expected in August, according to report released by the Labor Department. The report said non-farm payroll employment rose by 130,000 jobs in August after climbing by a downwardly revised 159,000 jobs in July. Economists had expected employment to increase by about 158,000 jobs compared to the addition of 164,000 jobs originally reported for the previous month. The Labor Department also said the unemployment rate held at 3.7% in August, unchanged from July and in line with economist estimates. (RTT)

US: Consumer credit jumps more than expected in July. Consumer credit in the US increased by much more than expected in July, according to a report released by the Federal Reserve. The Fed said consumer credit surged up by USD23.3bn in July after climbing by a downwardly revised USD13.8bn in June. Economists had expected consumer credit to jump by USD16.0bn compared to the USD14.6bn increase originally reported for the previous month. The bigger than expected increase reflected notable growth in both revolving and non revolving credit. Revolving credit climbed by USD10.0bn in July after edging down by 0.2% in the previous month. Additionally, non-revolving credit jumped by USD13.3bn in July after surging up by USD13.9bn in June. (RTT)

EU: German exports rise unexpectedly; imports drop. Germany's exports increased in July, while imports decreased MoM, raising hopes that foreign trade contributed positively to economic growth at the start of the 3Q. Exports advanced 0.7% MoM in July, reversing a 0.1% fall in June, Destatis reported. Meanwhile, imports dropped 1.5%, the biggest fall since last August, after rising 0.7% MoM. Exports were forecast to fall 0.5% MoM and imports to drop 0.3%. The trade surplus increased to a seasonally adjusted EUR20.2bn from EUR18bn in June. On a yearly basis, exports grew 3.8%, in contrast to an 8% increase in June. At the same time, imports fell at a slower pace of 0.9% following a 4.2% drop. Consequently, the unadjusted trade surplus increased to EUR21.4bn from EUR16.4bn last year. (RTT)

UK: GDP expands on services rebound. Soothing fears of recession ahead of Brexit, the UK economy expanded in July, largely driven by a rebound in services, figures from the Office for National Statistics revealed. GDP expanded 0.3% in July after staying flat in June. The index of production grew only 0.1%. Services and manufacturing rose 0.3% each in July. Construction recovered in July, rising 0.5% after contracting 0.7%. July's surprisingly strong rise in GDP suggests that it has not fallen into a recession, Paul Dales, an economist said. Whether that pace of growth rises or falls over the coming quarters almost entirely depends on what the timing and result of the looming general election means for Brexit, the economist noted. (RTT)

China: Exports fall unexpectedly in August. China's exports decreased unexpectedly in August amid escalating trade dispute with the US administration, official data showed. In dollar terms, exports decreased 1% YoY in August, confounding expectations for an increase of 2.1% and July's 3.3% expansion, figures revealed. At the same time, imports declined 5.6% but slower than the expected fall of 6.3%. As a result, the trade balance showed a surplus of USD34.8bn in August versus USD42.8bn surplus forecast by economists. Exports to the US plunged 16% and imports from the US declined 22.4%. (RTT)

China: Central Bank lowers reserve requirement ratio further. China's central bank reduced further the amount of cash that banks should set aside as reserves to spur liquidity in the economy hit hard by trade wars. The People's Bank of China decided to cut the reserve requirement ratio, or RRR, by 50bps, which will take effect on September 16, the bank said. The bank resorted to its third reduction in RRR so far this year as the economy struggles to maintain steady growth as trade disputes with the US hurt the manufacturing sector. In order to boost lending to small and medium-sized enterprises, the reserve ratio of some commercial banks was lowered by 1ppts. The reduction will be implemented in two stages, each time by 0.5ppts, first on October 15 and the second on November 15. (RTT)

Markets

Bumi Armada (Neutral, TP: RM0.22): Disposed FPSO Perdana for USD40m. Bumi Armada has entered into an agreement with Century Energy Services Limited for the sale of the Armada Perdana FPSO for a consideration of USD40m. (Bursa) Comments : We understand that Century Energy is Bumi Armada’s client/creditor and plans to redeploy the Armada Perdana to another field in Nigeria. The USD40m will be settled via i) deposit of USD5.5m, ii) outstanding amount to Bumi Armada of USD11.6m, iii) USD5m after delivery of FPSO, and iv) the balance of USD17.9m will be paid within 2 years from the First Oil after redeployment. While this development is positive to the Group as it resolves the prolong issues since mid-2017 with regards to the off-hire and outstanding receivables, we are neutral on the outcome as it doesn’t reflect much to its balance sheet. Debts remains high with more than RM8bn, translating to a net gearing of >2x. Bumi Armada will recognise a USD5m gain from this disposal.

Sapura Energy (Outperform, TP: RM0.43): Gas sales agreement with Petronas likely a new income source. Sapura Energy’s oil & gas field — SK408 production sharing contract (PSC) development project located offshore Sarawak — will start generating earnings soon. Sapura Energy announced that it has signed a gas sales agreement with Petroliam Nasional (Petronas). The SK408 PSC is expected to produce first gas by the end of this year with some 400 million cu ft of natural gas per day. By 2023, the block is expected to produce up to 1,000 million cu ft of natural gas per day. (The Edge)

Chin Hin (Outperform, TP: RM0.94): Partners education service provider for 8th & Stellar project. Chin Hin Group, has partnered with early childhood education service provider Melody Kindyland to bring in the latter’s kindergarten and daycare centre to its 8th & Stellar development in Sri Petaling, Kuala lumpur and possibly to another project in Seri Kembangan, Selangor. The partnership will see a Melody Kindyland kindergarten and daycare centre set up in three double-storey retail units at 8th & Stellar, which is expected to take up 6,000 sq ft of space and accommodate 160 children. (The Edge)

DWL Resources: Partners Mobitel to bid for public projects in Sri Lanka. DWL Resources, is partnering Sri Lanka's mobile provider Mobitel (Private) Ltd to secure government-related projects there. Its wholly-owned subsidiary DWL Technologies SB (DTSB) will form a JV company with Mobitel, seeking to provide the Sri Lanka Integrated Placement Solution (SLiFPS) to the Bureau of Foreign Employment of the Government of Sri Lanka. The JV company, to be incorporated in Sri Lanka, will have an initial paid-up capital of LKR100,000 (approximately RM2,300). DTSB will initially hold a 51% stake, with Mobitel the rest. (The Edge)

Supermax: Allocates RM1.13b to double capacity by mid-2024 . Supermax Corp has earmarked RM1.13bn in capex to double its production capacity by mid-2024. The glove maker aims to raise its production to 44.06bn pieces per year from 21.75bn pieces as at end Dec 31, 2018. The capex will be used to upgrade, rebuild and replace old lines and fund the construction of new plants. (The Edge)

Market Update

The FBM KLCI might open within a tight range today after Wall Street’s S&P 500 finished fractionally lower and Treasuries sold off following a mixed day in Europe, as investors weighed up signs of stimulus measures in major economies alongside the latest Brexit developments. The S&P 500, which had been up as much as 0.4% earlier on Monday, eased just 0.3 of a point, leaving it virtually flat for the session. The tech-heavy Nasdaq Composite slid 0.2%, but the Dow Jones Industrial Average carved out a 0.1% advance for its fourth consecutive daily gain. An advance in bond yields helped send bank shares higher with the S&P 500 financials sector climbing 1.1%, while bond proxies like real estate and utilities were down 0.9% and 0.6%, respectively. Treasuries sold off as investors weighed up expectations for further rate cuts after Federal Reserve chairman Jay Powell reiterated on Friday the US central bank would “act as appropriate to sustain the expansion”. His remarks followed US jobs growth that slowed to a three-month low in August. Investors are already anticipating a 25 basis point rate cut this month. Investors are also closely watching for the latest trade developments, with the US and China agreeing to resume face-to face talks next month. In the UK, the FTSE 100 fell 0.6% as UK markets braced themselves for more Brexit turmoil. European stocks were mixed. The Stoxx 600 was down 0.3% while the Xetra Dax trimmed its early gains following upbeat German exports data and was up about 0.3%. Overnight in the region, China’s CSI 300 of Shanghai- and Shenzhen-listed stocks rose 0.6%, while Tokyo’s Topix added 0.9% despite government data showing Japanese growth slowed to 1.3% in the three months to the end of June. South Korea’s Kospi gained 0.5%. Hong Kong’s Hang Seng index finished less than 0.1% lower following another weekend of political unrest in the city

Source: PublicInvest Research - 10 Sept 2019

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