Monday, July 16, 2018 FBMKLCI: 1, 721 .93 THIS REPORT IS STRICTLY FOR INTERNAL CIRCULATION ONLY* WWeeeekkllyy SSttrraatteeggyy Market View, News in Brief: Corporate, Economy, and Share Buybacks Kaladher Govindan Tel: +603-2167 9609 [email protected] www.taonline.com.my Market View Temporary Easing of Trade Tension Provides Trading Opportunities The local benchmark FTSE Bursa Malaysia Kuala Lumpur Composite Index (FBM KLCI) staged a strong comeback last week, helped by optimism stronger-than-expected US June employment data will boost corporate earnings, dovish statement from Bank Negara which left interest rates unchanged, and reducing trade war tensions despite the US threatening more tariffs on another USD200bn of Chinese imports. Key banking and utility heavyweights were the major beneficiaries as investors returned back to the market. For the week, the FBM KLCI surged 58.07 points, or 3.5 percent to 1,721.93, as Petronas Gas (+RM1.28), HLFG (+RM1.02), Petronas Dagangan (+86sen), Hong Leong Bank (+70sen), Maybank (+54sen), Public Bank (+48sen) and CIMB (+41sen) contribute most of the gains. Average daily traded volume and value last week recovered to 2.41 billion shares worth RM2.33 billion, compared to 2.01 billion shares and RM1.67 billion respectively the previous week. The local market took it in stride when the US president announced 10% tariff on USD200bn worth of Chinese imports last Tuesday and rallied in the last two trading days of the week. While Bank Negara’s dovish statement was interpreted as sustained monetary accommodation and helped put the wind in sail, the single largest contributor for the rally could have been the absence of China’s immediate retaliation to US’ additional USD200bn import tariff, which could take effect as early as next month, and willingness of the world’s two largest economies to go back to the discussion table to find a solution to their trade disputes. In hindsight, one should know China’s delayed reaction to Trump’s additional tariff need not necessarily be construed as willingness to compromise as it does not have equivalent worth of imports from the US to engage on an immediate tit-for-tat action. In 2017, China imported only USD130bn worth of products from the US versus the latter’s USD505bn. Thus, the retaliation will no longer be straightforward but may evolve into other forms such as stringent enforcement of rules and regulations on US businesses already invested in China, devaluing its currency or pairing down its holdings in US treasury. Nevertheless, news that German automaker BMW taking majority ownership in its Chinese automotive venture and Tesla will be building its first factory outside the US in China sent a strong message that the world’s second largest economy is serious about opening up its economy. On the other hand, the US’ decision to relent to President Xi Jinping’s request to lift the ban on China’s ZTE Corp. after imposing a USD1.4bn penalty can be viewed as a conciliatory approach by some, which could extend the current relief rally in the global equity markets. Page 1 of 9 16-Jul-18 However, investors should not throw caution to the wind as this trade war is likely to prolong and China’s trade data for June, which was released last Friday, doesn’t make it easy as its surplus of USD29bn was the highest ever with the US for any single month. Total surplus stood at USD41.6bn, much higher than consensus estimate of USD27.7bn. It could be driven by exporters’ front loading their shipments ahead of import tariffs that took effect on 6 th July. Looking ahead focus could shift to China’s second quarter GDP, industrial production and retail sales data for June that will be released today. At 6.7% YoY, consensus GDP forecast is pointing to a slight weakening versus 6.8% YoY in 1Q18, which is understandable due to government crackdown on riskier investments. On the other hand, the US beige book that will be released this Thursday could provide some anecdotal information on current economic conditions in the world’s largest economy. Disclaimer The information in this report has been obtained from sources believed to be reliable. Its accuracy and/ or completeness is not guaranteed and opinions are subject to change without notice. This report is for information only and not to be construed as a solicitation for contracts. We accept no liability for any direct or indirect loss arising from the use of this document. We, our associates, directors, employees may have an interest in the securities and/or companies mentioned herein. Kaladher Govindan – Head of Research TA S ECURITIES HOLDINGS BERHAD (14948-M) A Participating Organisation of Bursa Malaysia Securities Berhad Menara TA One 22 Jalan P. Ramlee 50250 Kuala Lumpur Malaysia Tel: 603 – 207 2 1277 Fax: 603 – 203 2 5048 www.ta.com.my Page 2 of 9 16-Jul-18 News In Brief Corporate Prasarana Malaysia Bhd will abide by the Ministry of Finance (MoF) instructions on the cost reduction for the light rail transit line 3 project . The state-owned transportation company said it was currently awaiting instructions from the MoF for the rigorous and comprehensive cost rationalisation to be approved. (Bernama) The Real Estate and Housing Developers´ Association Malaysia Institute has proposed affordable housing price thresholds in Peninsular Malaysia , with residential units in Kuala Lumpur and the Klang Valley topping the list at RM500,000. (Bernama) The Ministry of Communications and Multimedia Malaysia is studying the direct telecast of English Premier League (EPL) football matches on Radio Television Malaysia (RTM) in future . Minister Gobind Singh Deo said that this is something that was brought to the ministry’s attention, but not for this year and next year because it may incur massive funds, but in future years. (Bernama) Comment: We view this as a short-term reprieve for Astro. To recap, one of the Pakatan Harapan government’s proposal in its manifesto include to offer free broadcasts via RTM of all major sports leagues around the world, including the EPL. As before, we view that the availability of major sporting events on RTM’s channels for free could diminish the appeal of subscribing to Astro’s sports packages resulting in downside to its ARPU, subscriber base and adex. Astro’s broadcasting rights for the EPL will end after the 2018/2019 season. Maintain Hold (RM1.65/share). Scientex Bhd is targeting to deliver 50,000 units of affordable homes nationwide by 2028, said its managing director Lim Peng Jin. To date, Scientex’s property division has delivered nearly 16,400 affordable homes priced below RM500,000 nationwide, of which some 70% are priced below RM200,000. (The Edge) Comment: This comes as no surprise as currently Scientex has an on-going project worth Gross Development Value (GDV) of RM1.4bn and lands for future development worth about GDV of RM9.0bn to be used in the next eight to ten years. Note that as of 9MFY18, the group recorded property sales of RM413.8mn. Moving forward, we project Scientex to achieve an average annual unbilled sales of RM650.0mn between FY18-FY20. Management guided that the group will continue to focus on the affordable housing segment as it has been achieving high take up rate of between 80% and 90% in the past projects and seeing continuous demands for this housing category. Maintain our Sell call on Scientex with unchanged target price of RM7.00/share based on CY19 EPS. IHH Healthcare Bhd has entered into a share subscription agreement with Fortis Healthcare Ltd (Fortis), as issuer, for the proposed subscription of 235.3mn new Fortis shares by way of preferential allotment representing approximately 31.1% of the total voting equity share capital of Fortis on a fully diluted basis for a total consideration of INR 4,000 crore (RM2.3bn), at a share price of INR 170 (equivalent to RM9.98). (Bursa Malaysia) Axiata Group Bhd ’s wholly owned unit Axiata Investments (Labuan) Ltd (AIL) has entered into an agreement with Adnan Asdar Ali for the divestment of AIL’s 89% stake in Multinet Pakistan Pte Ltd for US$1 on a cash-free and debt-free basis. (The Star) Page 3 of 9 16-Jul-18 Digi.Com Bhd ’s 2QFY18 net profit was flat YoY at RM359mn on a pre -MFRS 15 basis. Service revenue grew 2.1% YoY to RM1,484mn anchored by solid postpaid and internet revenue growth. A second interim dividend of 4.9sen per share was announced. (Bursa Malaysia) Malaysia Airports Holdings Bhd expects to conclude the disposal of its stake in GMR Hyderabad International Airport Ltd in India by the end of this year. (The Star) Matrix Concepts Holdings Bhd 's wholly-owned subsidiaries, BSS Development Sdn Bhd and Matrix Concepts Sdn Bhd, have proposed to dispose of properties in Seremban, Negeri Sembilan worth RM3.7mn. (Bernama) JAKS Resources Bhd is appealing the High Court's decision ordering the release of a RM50.0mn bank guarantee to Star Media Group Bhd . (The Edge) Bintai Kinden Corporatoin Bhd has secured a RM50.5mn contract from Tenaga Nasional Berhad to be the contractor to undertake the establishment of the new 132kV GIS switching station in Selangor. (Bursa Malaysia) Page 4 of 9 16-Jul-18 News In Brief Economy Malaysia Association Seeks SST Exemption on Investment Metals The Malaysia Gold Association wants investment precious metals (IPMs) and jewelleries to be exempted from the soon-to-be implemented sales and services tax (SST). Honorary secretary Datuk Louis Ng Chun Hau said the association’s representatives have met with the Finance Ministry and Customs Department officials recently to give their views on the matter but no decision was reached.