9 December 2008 Newz Bits

December 10, 2008 at 3:55 am Leave a comment

TALKING POINT

Plantation – upgrading sector call to Overweight
Production numbers have not come off yet, but seasonality effects are set to kick in the coming 3 months hence easing the pressure of high stock levels. On exports, we see choppy numbers coming through before demand kicks back in along with economic health of importing countries. We believe that it is going to continue to be a rough ride in the coming 3-6 months before CPO prices see the light of day hence our very apt title of this report. After tweaking our 2009 CPO expectations down from RM2,300 to RM2,175 as well as moving on to DCF valuation methodologies, we continue to see many conviction buys amongst our coverage. We believe that
current market conditions warrant a good opportunity to cherry pick at severely sold down CPO stocks hence we are upgrading the sector from Neutral to Overweight. Top picks are Sime Darby, IOI Corp and Asiatic.

HIGHLIGHTS

On Malaysia
• MMC to acquire Senai Airport Terminal Services for RM250m lower than original price of RM1.95bn
• Scomi Group expects to raise RM120m from rights issue
On The Global Front
• U.S. leading economic indicators fell in October for the 3rd time in 4 months
• Oil markets should brace for a surprise decision on output cuts when OPEC meets Dec 17
REPORTS
• Plantations – It is Darkest Before Dawn (Overweight)

Kumpulan Perangsang Selangor Bhd’s (KUPS MK, Hold TP: RM2.10) move to consolidate the water treatment and supply of water in the state’s fragmented water industry will be decided today at its EGM. Shareholders will have to cast their votes on the company’s proposed acquisition of a 15% stake in Syarikat Bekalan Air Selangor Sdn Bhd (Syabas) for RM200m cash from the Selangor state investment arm – Kumpulan Darul Ehsan Bhd (KDEB). (StarBiz)
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AirAsia Bhd (AIRA MK, Buy, TP: RM1.90) has confirmed that its major shareholder Tune Air Sdn Bhd has been unable to secure financing to fund the privatisation of the low-cost carrier. AirAsia said on Dec 5 that it had been informed by Tune Air that the latter was “unable to secure financing on acceptable terms and conditions from financial institutions to fund the potential privatisation.” (Financial Daily)
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YTL Land & Development Bhd, the property arm of YTL Corp Bhd (YTL MK, Buy, TP: RM8.00), will push ahead with the launch of the last phase of its Pantai Hillpark development in Kuala Lumpur next year despite the global financial crisis. Dubbed Pantai Peak, the RM500m project features a 16-ha gated community, which will be located on YTL Land’s final parcel of land in Pantai Hillpark. (BT)
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The recurring issues of tariffs and fuel costs are expected to dominate discussions at the Tenaga Nasional Bhd (TNB) (TNB MK, Buy, TP: RM8.20) AGM on Thursday. The bid for a stake in the Bakun hydro-electric dam project by TNB and talk of a change in the company’s top management will also grab the attention of shareholders. Market talk has it that TNB president and chief executive officer Datuk Seri Che Khalib Mohamad Noh may leave a year ahead of the expiry of his
contract, which is due to end only in 2010. (StarBiz)
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Sarawak Hidro Sdn Bhd, the owner of Bakun hydroelectric dam, has been slapped with an additional claim amounting to RM80m from Impsa Malaysia, the supplier of four of the eight turbines that will be installed in the 2,400MW hydro plant. Sources said that Impsa Malaysia put in additional claims a few weeks ago and if approved, the claims for the turbine job, initially awarded at RM460m, will amount to RM225m. (Financial Daily)
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MMC Corporation Bhd (MMC) will pay RM1.7bn for the entire stake in Senai Airport Terminal Services Sdn Bhd (SATS), RM250m lower than the original price of RM1.95bn announced earlier. In a statement Thursday, MMC said as consideration for the discount, the acquisition would be paid in cash instead of a share issue. MMC said following the drop in MMC’s share price from RM2.80 at the time the deal was announced in August to RM1.29 currently, the vendors had requested for a lower price for the new MMC shares to be issued as payment for the acquisition. MMC’s CEO Malaysia Hasni Harun said issuing twice the number of shares for the acquisition of SATS would have enlarged MMC’s share base significantly and reduce earnings per share. He added that having considered all factors, the board decided to negotiate for payment in cash in return for a discount of 12.8% in the acquisition price. (Financial Daily)
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Ekovest Bhd and its junior partner Faber Group Bhd have delayed the construction of the National Institute for Natural Products, Vaccines and Biology complex in Nilai estimated at RM1.2bn. According to Ekovest’s 2008 annual report, the development of the national institute has not been progressing as anticipated and that further negotiations with the relevant
authorities are still ongoing. The board said it will continue with its effort to hasten the process and is hopeful of its conclusion before the end of the current financial year (June 30, 2009). Meanwhile, Ekovest also disclosed that its proposed corporate exercise in respect of the Danga Bay Waterfront City Development, near Johor Bahru, had been aborted citing unfavourable
equity market conditions. (Financial Daily)
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Scomi Group Bhd expects to raise RM120m from a proposed renounceable rights issue as it seeks to expand its operations. The company said on Friday the corporate exercise involved up to 554.4m rights shares on the basis of one rights for every two existing shares held at 30 sen per rights share. Under the minimum scenario, it was expected to raise RM120m, of which RM70m would be used to increase its investment in its subsidiary or subsidiaries and/or new businesses. (StarBiz)
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MK Land Holdings Bhd’s strategy to turn around the company amid the current economic slowdown will see the property developer focusing on medium-cost and affordable homes, said chief operating officer Lau Shu Chuan. The turnaround plan would be carried out in three phases and was expected to be completed in three to five years, depending on the market outlook, he said. (StarBiz)
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Malaysia will not be in recession next year, particularly as the government’s stimulus plan implemented starts to show results by the first quarter, Second Finance Minister Tan Sri Nor Mohamed Yakcop said Saturday. “At this point of time, there is no possibility from our calculations that we will enter recession in 2009. Our calculations are based on the actual economic scenario now and also based on what we are going to do,” he added. Nor Mohamed said when the government first announced measures to cushion the impact from the global uncertainties, the idea was to implement these measures quickly so that the impact will be evident in the next few months. (Bernama)
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Local automakers will decide then if they need to cut production in March, According to Perusahaan Otomobil Kedua Sdn Bhd (Perodua) managing director Datuk Syed Hafiz Syed Abu Bakar. There is no slowdown for now as we’re building up stock ahead of Chinese New Year. February is typically weaker as it’s a shorter month. We’ll be monitoring the situation if we need to revise the production numbers, Datuk Syed Hafiz Syed said. (StarBiz)
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Stocks rallied Monday as investors welcomed President-elect Barack Obama’s plan to create jobs and revive the economy, and reports that government help for the automakers is on the way. The DJIA jumped 298 points (+3.5%, close 8,934.2 pts). The S&P 500 added 3.8% (+33.6 pts, close 909.7) and the Nasdaq composite gained 4.1% (+62.4 pts, close 1,571.7). In currency trading, the dollar fell versus the yen but gained against the euro. US light crude oil for January delivery rallied US$2.90 to settle at US$43.71 a barrel on the New York Mercantile Exchange, after ending the previous session at a 4-year low. (CNNMoney)
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The US economy shed 533,000 jobs in November, according to a government report Friday – bringing the year’s total job losses to 1.9m. November had the largest monthly job loss total since December 1974. “This is a dismal jobs report,” said Keith Hall, commissioner of the Bureau of Labor Statistics, at a congressional hearing. “There’s very little in this report that’s positive. This is maybe one of the worst jobs reports the Bureau of Labor Statistics (founded in 1884) has ever produced.” The number of jobs lost in the current recession, which began in December 2007, surpasses the 1.6m jobs lost in the 2001 recession. (CNNMoney)
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The US Department of Labour reported Thursday that initial filings for state jobless benefits increased by 27,000 to 542,000 for the week ended November 15. This marks the third time since 1992 that initial claims have exceeded 500,000. The Senate on Thursday voted to approve a measure, passed by the House earlier this year, that extends benefits to the unemployed. The bill allows for a seven-week extension in every state and would provide an additional 13 weeks in states with an unemployment rate of 6% or greater. The number of people continuing to collect benefits for one week or more neared a 26-year high. The number surged by 109,000 to 4m people for the week ended November 8, the most recent data available. (CNNMoney)
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The index of leading US economic indicators fell in October for the third time in four months as stocks and consumer confidence plunged, signalling a deepening recession. The Conference Board’s gauge dropped 0.8%, more than forecast, after rising 0.1% in September. Consumers and companies are cutting back as financial markets remain fragile, job losses mount and housing and manufacturing sink deeper into a slump. (Bloomberg)
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UK retail sales fell less than economists forecast in October as shoppers bought more food items, offsetting lower spending on electrical goods and clothing. Sales fell 0.1% in October after dropping 0.5% in September, the Office for National Statistics said. The decline was less than the 0.9% median forecast in a Bloomberg News survey of 27 economists. Household goods stores led the monthly drop and fell 5.4% from a year earlier, the most since 1992, as shoppers bought
fewer electrical items. Food sales rose 1%, helping to offset the overall decline. (CNNMoney)
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The French government and a state-owned lender will raise 6bn euros (US$7.6 bn) to create a sovereign fund aimed at protecting and developing the country’s “strategic companies”. The creation of the fund is aimed at implementing French President Sarkozy’s plan, announced last month, of protecting strategic French companies from “foreign predators” and helping them survive the global financial crisis. The turmoil has wiped out about 45% of the value of the benchmark CAC 40 index, choked bank lending and left businesses struggling to find financing. (Bloomberg)
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The Dutch economy will enter its first recession since 1982 next year as the credit crisis curbs exports and the government budget shows a deficit, according to a forecast by government planning agency CPB. The economy in the Netherlands, the fifth-largest in the euro region, will contract 0.75% next year after growth of 2.25% this year, only to recover in 2010 when the economy expands 1%, the agency said in statement released yesterday. Inflation is forecast to slow to 1.5% next year and 1% in 2010 from 2.5% this year. (Bloomberg)
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Industrial production in Germany fell more than economists forecast in October after demand for plant and machinery faltered. Output dropped a seasonally adjusted 2.1% from September, the Economy Ministry in Berlin said yesterday. Economists had expected a decline of 1.9%. Y-o-y, production adjusted for working days fell 3.8%. Companies are reining in manufacturing and shedding jobs as the global financial crisis that originated in the US and pushed Europe into recession damped global demand. (Bloomberg)
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Oil markets should brace for a surprise decision on output cuts when OPEC meets Dec. 17, the cartel’s president said Saturday, suggesting that reductions could be deeper than expected. “A consensus has formed for a significant reduction of production levels” by the 14-member Organization of Petroleum Exporting Countries, OPEC President Chakib Khelil told The Associated Press. The OPEC head would not discuss how deep the output cut would be, but said it could be “severe,” and noted that some analysts are predicting cuts of as much as 2 million barrels per day. An output decision that startles markets would help bolster plunging oil rates, Khelil said. “The best way is to surprise them,” he said. “I hope it (the decision) will.” (CNNMoney)
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Top oil exporter Saudi Arabia will make even bigger oil supply cuts to some of its Asian and European customers next month, industry sources said yesterday as the kingdom stepped up efforts to halt the steep slide in prices. Oil traders had not expected Saudi Arabia to make any further explicit cuts ahead of Opec’s December 17 meeting, but yesterday at least two oil refiners in Asia were told by state oil firm Aramco that they would get less crude in January that in December. An industry source said cuts were also deepened to some European lifters. (Financial Daily)
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Borrowing in the international debt securities market plummeted 77% to US$247bn in 3Q08 compared with 2Q08, reflecting continued turmoil in financial markets, according to the Bank for International Settlements. And net issuance of money market instruments fell into negative territory, dropping to minus US$30bn in 3Q08, from plus US$69bn in the previous quarter. In the debt securities market, net issuance of bonds and notes slumped to US$247bn from US$1.09trn. The decline is “well beyond normal seasonal patterns” and resulted in the lowest level of net issuance since the 3Q05, according to BIS’s quarterly review. (WSJ)
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5 December 2008 Newz Bits December 10, 2008 Daily Highlights

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