22 January 2009 Newz Bits

January 22, 2009 at 6:54 am Leave a comment

TALKING POINT


Double reduction again on OPR and SRR

Bank Negara Malaysia, in its most aggressive move yet, reduced the OPR and SRR rates by 75bps and 150bps to 2.5% and 2.0% respectively in the Monetary Policy Committee meeting yesterday.
The move was certainly unexpected, with market expectations of a 25-50bps cut, and could possibly point to a rapidly weakening economic environment. The resultant effect of the net interest margin contraction are negative changes to earnings, valuations and target prices for all banking stocks under coverage, by an average of 5-12%, which we effect immediately though the
decision of respective banks’ managements as to the re-pricing of deposits are yet to be known. We continue to favour Public Bank for its attractive dividend yields and strong management, AMMB Holdings and Bumiputra-Commerce Holdings for stronger recoveries upon improvement in market conditions. Hong Leong Bank is downgraded to a Hold.

HIGHLIGHTS


On Malaysia

· Inflation falls more than expected in December
· RAM: Budget deficit is expected to surpass 5% for next 2 – 3 years
On The Global Front
· U.K. unemployment rises at the second fastest pace since 1991
· Singapore’s economy shrinks the most on record in 4Q08
REPORTS
· Banking – Double reduction again (Neutral)
· Tenaga – Proposal to take over operations at Bakun (Buy; RM6.00; TP: 6.75)

Gamuda Bhd (GAM MK, Buy, TP: RM2.28), is taking an “active but selective” approach when bidding for construction projects in the gulf states despite the good reputation of the oil rich nation, its Senior General Manager KW Chan said yesterday. He said the company was bidding for the second phase of the Dukhan Highway for which the tender would be out next month. The contract is worth more than RM1bn. Besides tendering in Qatar and Bahrain, the company was also eyeing potential construction projects in Dubai and Abu Dhabi. “We will be active in the Middle East, but we are taking a selective approach when bidding for projects to keep up with our good reputation,” he added. (BT)
* * * * *
Parkson Holdings Bhd is maintaining its China expansion plans this year in spite of a potential slowdown in consumer spending as a global economic downturn has pushed the country’s urban unemployment rate soaring to 4.2%, the first time in 5 years. MD Tan Sri William Cheng said that they were still expecting strong growth from China. Last year, retail sales from the China business grew 27%. The plan is to open another 10 outlets in China. (Financial Daily)
* * * * *
Sarawak Aluminum Co, a JV between Rio Tinto Alcan and Cahaya Mata Sawarak Bhd – is in advanced negotiations with Sarawak Energy Bhd on the supply of power to its proposed US$3bn aluminum smelter project in Samalaju Industrial Park, Bintulu. Rio Tinto business development Asia director Matt Liddy, however, gave no indication on when the negotiations could be concluded. Liddy said the power would come from Bakun hydroelectric dam, which could generate up to 2400MW. He said Rio Tinto was expected to make an investment decision on the project in 12 months as it has to first ensure the power supply and other necessary infrastructure, like the proposed port, would be in place. (StarBiz)
* * * * *
Inflation fell by more than expected to a seven-month low in December, driven by lower fuel prices, and economists expect it to drop further. The consumer price index (CPI) rose 4.4% y-o-y. Food prices softened for the third consecutive month to 10.4% y-o-y. Transportation costs also declined by 0.3% y-o-y in December from 6.1% previously and a peak of nearly 22% in July last year. According to the Statistics Department, the CPI grew by 5.4% to 111.4 in 2008. (BT)
* * * * *
The country’s budget deficit is expected to surpass 5% for the next two to three years, as the government may need to pump more capital into the economy that is feared to be on the brink of recession, an economist said. “Although the budget deficit is likely to widen to beyond 5% for the next two to three years, it is not as great a concern for the time being, as the bigger worry is a downward spiral in the economy, in view of a synchronised recession globally,” RAM Holdings Bhd chief economist Dr Yeah Kim Leng said yesterday. He added that a widening deficit would not be seen as an imprudent measure as long as it could sustain economic growth and prevent the country from falling into a sharp and prolonged recession. (Financial Daily)
* * * * *
The government’s proposed second stimulus plan should focus on manufacturing and construction as the economic downturn has led to a series of job cuts in these sectors, Associated Chinese Chambers of Commerce and Industry of Malaysia (ACCCIM) president Tan Sri William Cheng said. Some 47% of respondents polled by ACCCIM planned to cut their workforce, while about 65% of those respondents involved in the manufacturing sector were mulling job cuts. (Financial Daily)
* * * * *
The US-Malaysia Free Trade Agreement (FTA) is to be fast-tracked under the administration of new US President Barack Obama, US Ambassador to Malaysia James R Keith said yesterday. He said the FTA will be finalised after the officials in charge of trade negotiations have been appointed under the new administration. “The US commitment on the FTA will remain as this is important for Malaysia’s economic growth and for US companies investing in Malaysia,” Keith said at the US Presidential Inauguration Party. (Financial Daily)
* * * * *
New motor vehicle sales are expected to plunge below the half million mark, dropping 12.4% to 480,000 units in 2009, mainly due to unfavourable consumer sentiment on the back of the economic downturn, said Malaysian Automotive Association (MAA). MAA president Datuk Aishah Ahmad said other factors that led to the projected decline in total industry volume (TIV) included lowered used car resale values. (Financial Daily)
* * * * *
The prices of vehicles are expected to increase due to the exchange rate losses incurred by automotive players as a result of the weakening ringgit, said Malaysian Automotive Association (MAA). MAA president Datuk Aishah Ahmad said most of the members of MAA were losing out in terms of exchange rate. She said although fuel prices had gone down slightly, cost of goods like food items had not come down. Aishah added that most of the members were holding back from increasing prices at the moment. (Financial Daily)
* * * * *
Fraser & Neave Holdings Bhd (F&N) hopes to achieve a single-digit growth in revenue this year. The company reported a record revenue growth last year, as revenue rose 25.3% to RM3.59bn for the year to September 30 2008. “In view of the overall weak consumer sentiment, we are not pessimistic but we remain realistic in our target,” said chief executive officer Tan Ang Meng after the group’s annual general meeting in Kuala Lumpur yesterday. (BT)
* * * * *
Bursa Malaysia’s benchmark index, the Kuala Lumpur Composite Index (KLCI), will be known as FTSE Bursa Malaysia KLCI from July 6 as the local bourse adopts the FTSE global index standard to ensure that it remains globally relevant. The FTSE Bursa Malaysia KLCI will comprise only the largest 30 main board companies based on investable market capitalisation, instead of the current 100. The index value will remain unchanged and will adopt the KLCI index closing value
on Friday, July 3. Exchange- traded products now tracking the KLCI and FTSE Bursa Malaysia Large 30 Index will also move into the FTSE Bursa Malaysia KLCI. (BT)
* * * * *
Stocks rallied Wednesday, recovering most of the previous session’s losses, as investors welcomed IBM’s earnings and scooped up bank shares hit hard in the recent retreat. The Dow Jones industrial average gained 3.5% (+279.0 pts, close 8,228.1), again reclaiming the 8,000 level. The Standard & Poor’s 500 index rose 4.3% (+35.0 pts, close 840.2) and the Nasdaq composite added 4.6% (+66.2 pts, close 1,507.1). In currency trading, the dollar fell against the euro and the yen. U.S. light crude oil for March delivery rose US$2.71 to settle at US$43.55 a barrel on the New York Mercantile Exchange. (Bloomberg)
* * * * *
President Barack Obama’s economic team is pushing to complete a bank-rescue plan that can be twinned with the US$825bn stimulus package being negotiated with Congress to alleviate the rapidly deepening financial crisis. While full details of the rescue haven’t been settled yet, people familiar with the deliberations said the package is likely to include a US$50bn-plus program to stem foreclosures, fresh injections of capital into the banks and steps to deal with toxic assets
clogging lenders’ balance sheets. In his inaugural address Tuesday, Obama called for “bold and swift” action to resolve the crisis that’s cost the economy almost 2.6m jobs last year, the most since 1945. (Bloomberg)
* * * * *
European Central Bank (ECB) President Jean-Claude Trichet said credit-rating downgrades and worsening public finances in some euro-region countries are not threatening to break up the decade-old monetary union. He said in a very vast continental economy, it is not abnormal to have diversity. Standard & Poor’s this month downgraded the sovereign credit ratings of Spain and Greece and said the ratings of Ireland and Portugal are under threat. Bond yield spreads between the strongest and weakest euro-region economies have ballooned as the global financial crisis pressures budgets, making the ECB’s one-size-fits-all monetary policy less effective. (Bloomberg)
* * * * *
U.K. unemployment rose at the second-fastest pace since 1991 in December as the worsening recession prompted retailers and automakers to cut jobs. The number of people receiving jobless benefits rose 77,900 to 1.16m, the highest level since January 2000, the government’s statistics office said yesterday. Economists had expected an increase of 81,000. The losses pile pressure on the Bank of England to cut the key interest rate from the current 1.5%. (Bloomberg)
* * * * *
Bank of England Governor Mervyn King said officials may start buying assets within weeks to loosen credit markets as the lowest U.K. interest rates since 1694 fail to avert a “marked” recession. The central bank may acquire securities such as corporate bonds and commercial paper to bolster lending to companies and consumers as banks rebuild balance sheets damaged by the global financial crisis. The bank said yesterday officials opted not to cut its key rate by one percentage point this month on concern it might unsettle markets. (Bloomberg)
* * * * *
Singapore’s economy shrank the most on record in 4Q08 and the government forecast a 5% contraction this year and a possible 1% fall in consumer prices, which may prompt a one-off currency devaluation. Government data showed 4Q08 gross domestic product (GDP) shrank at a deeper-than-expected and seasonally adjusted rate of 16.9%, the biggest fall on record and the third consecutive quarterly contraction. GDP fell 3.7% on a y-o-y basis. That left 2008 growth at just 1.2%, an abrupt turnaround from a 7.7% expansion in 2007 when the stock market, financial services and property prices were booming. A government declaration that the economy was suffering its worst ever recession and official forecasts of a continued slump suggests the central bank could push down the centre of the trading band for the Singapore dollar, effectively devaluing it to help the key export sector. (Reuters)
* * * * *
India ruled out import taxes on crude palm oil as prices of domestic oil seeds stay above the assured rates the government pays farmers. Domestic oilseed prices are rising, Farm Minister Sharad Pawar told reporters in New Delhi yesterday. India’s plans to extend duty free imports may help support this month’s rally in palm oil prices in Malaysia. (Financial Daily)
* * * * *
Foreign direct investment (FDI) in developing nations will drop by US$180bn (RM642.6bn), or 31% this year as a global recession prompts the multinationals to cut spending on factories and mines, according to the World Bank. The decline will put a renewed pressure on emerging market currencies, even as asset sales by fund managers slow, said Mansoor Dailami, manager of international finance in the global development prospects group. (Bloomberg)
* * * * *

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Public Bank 4QFY08 : Still going strong Banking : Double reduction again

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