7 January 2009 Newz Bits

TALKING POINT

No safe haven in the Middle East
News of WCT Bhd’s RM4.6bn Meydan Racecourse job in Dubai being called off coming to light yesterday not only caused a 30% limit down on WCT’s share price but also sent shock waves to the construction sector and investment fraternity. This will dampen investor sentiments and cast more dark clouds over the construction sector. The cancellation of this contract may not necessarily indicate that Middle Eastern jobs face heightened risks of cancellation as the disputes of the contract could very well be project-specific. Among companies under coverage, IJM and
Gamuda have the least exposure to the Middle East while Sunway Holdings and Muhibbah have significant exposures exceeding 40% of their total order books. Our underweight call on the construction sector remains unchanged. However, we reiterate our valuations and calls on construction companies under coverage.

HIGHLIGHTS

On Malaysia
• Sime Darby withdraws bid to privatize IJN
• Genting’s Singaporean casino to be fully launched in 2011
On The Global Front
• UK house prices experience biggest drop since 1991
• Toyota to halt production at Japanese plants for 11 days
REPORTS
• Construction (Underweight) – No safe haven in the Middle East

Sime Darby Bhd (SIME MK, Buy, TP: RM6.40) has withdrawn its bid to privatise the National Heart Institute (IJN), a move which relieves the cabinet from reversing its earlier approval of the proposal. The conglomerate said it decided not to pursue the plan after taking into account public sentiment and feedback received since its proposal was made public on December 18. “Sime Darby would nevertheless continue to look for opportunities for expansion in the healthcare sector”, the company said. (Financial Daily)
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The two new appointees to the board of Star Publications (M) Bhd (STAR MK, Hold, TP: RM3.60) are likely to be made executive directors under the reorganisation of the media company’s board, according to sources. Last Monday, Star announced that it had roped in two new board members with notable experience in the media industry – Datuk Clement Hii Chii Kok and Ng Beng Lye, as non-independent and non-executive directors, a move seen as paving the way for the duo to assume executive roles. (Financial Daily)
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Sunway Holdings Bhd (SGW MK, Buy, TP: RM0.92) and Goldman Sachs Strategic Investments (Asia) LLC have entered into a subscription agreement with Sunway Global Ltd that will be effected by capitalising the amount owing to the two companies by the latter. Under the agreement, Sunway Holdings and Goldman Sachs will subscribe for 78.69m and 57.62m share of HK$1 each in Sunway Global, a 60% subsidiary of Sunway Holdings. In an announcement to Bursa Malaysia yesterday, Sunway Holdings said it would also subscribe for 155.31m shares in Sunway Global for HK$155.31m (RM70.30m) cash. It said the exercise would place the subsidiary in a position to benefit from the economic stimulus package in China. On completion of the exercise, it will hold 79.88% in Sunway Global while Goldman Sachs will hold 19.78%. (Financial Daily)
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Former chief executive officer of Aseambankers (M) Bhd Surachet Chaipatamanont is slated to join Hong Leong Bank (HLBK MK, Buy, TP: RM6.40), according to sources. “Surachet is joining Hong Leong as a consultant for its investment banking arm. He is expected to join the investment bank as the CEO but that is subject to Bank Negara’s approval”, said a source. Banking analysts are viewing this development positively. (Financial Daily)
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Resorts World at Sentosa Pte Ltd, a unit of Genting International Ltd, says its integrated resort may be fully completed and officially launched in 2011. The casino, the Universal Studio Singapore theme park, the Festive Walk and four hotels (namely Hotel Michael, Maxim Towers, Hard Rock Hotel and Festive Hotel) are due to be launched in the first quarter next year. However, the world’s biggest oceanarium, Marine Life Park, the Spa Villas and the Equarius Hotel will be launched later. (BT)
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AEON Co (M) Bhd, which operates the Jusco department store chain, expects to open two retail stores this year. Its general manager of the corporate affairs division, A. Rashid Adam, said one of the new stores will be located in Malacca and the other in Cheras in the Klang Valley. (BT)
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Automotive sales in the country are expected to drop 8.1% to 501,500 units this year from an expected 545,440 units in 2008, mainly due to weakening consumer spending on the back of the economic slowdown, Frost & Sullivan GIC Malaysia Sdn Bhd said. Frost & Sullivan Asia Pacific partner and head of the automotive and transportation practice Kavan Mukhtyar said the projected decline in total industry volume (TIV) was also due to an expected bumper sale in 2008, a lack of new and upcoming mass-market car models and a marginal increase in unemployment rate. Mukhtyar added that only the multi-purpose vehicle (MPV) segment was likely to grow; at 7.2% y-o-y to 57,000 units in anticipation of Proton’s MPV launch in 1Q09, and the Perdoua MPV in 4Q09. Nevertheless, he said the impact on the automotive sector would be cushioned by marginally lower interest rates, continued demand from replacement car buyers, lower inflation rate, sustained economic growth from the government’s stimulus package and the new launches in the MPV segment. (Financial Daily)
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Zelan Bhd’s outgoing chief executive officer Albert Chang contended that it was not at his request that his contract with the company be allowed to lapse at the end of this month. Chang said MMC Corporation Bhd’s press release dated Dec 3, 2008 did not accurately reflect the events leading to the non-renewal of his contract. In the release, MMC said: “Zelan’s board of directors had allowed the contract of its CEO, Albert Chang, to lapse on Jan 31, 2009, at his request.” (Financial Daily)
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Parkson Holdings Bhd’s 53.68%-owned Hong Kong listed subsidiary, Parkson Retail Group Ltd, expects a 7%-8% decline in same store sales (SSS) for the fourth quarter of 2008. Announcing this to Hong Kong stock exchange on Tuesday, Parkson Retail said this was partly due to the continuing deterioration of the trading environment along the coastal region of China. It said the deferment of the new year holiday sale season, which started on Dec 31, 2008, compared to the
2008 sale season that started on Dec 29, 2007, had affected the SSS for the fourth quarter by more than 2.5%.(Financial Daily)
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Stocks rallied Tuesday as investors looked beyond the Federal Reserve’s dour outlook on the economy and instead scooped up shares hit in last year’s big selloff. The DJIA rose 62.2 points (+0.7%, close 9,015.1). The S&P 500 gained 0.8% (+7.3 pts, close 934.7) and the Nasdaq composite climbed 1.5% (+24.4 pts, close 1,652.4). In currency trading, the dollar gained versus
the euro and the yen. US light crude oil for February delivery fell US$0.23 to settle at US$48.58 a barrel on the New York Mercantile Exchange. (CNNMoney)
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The U.S. economy ended the year in a steep decline, with factory orders, home sales and service industries all contracting further, reports showed yesterday. The Institute for Supply Management’s index of non-manufacturing businesses was 40.6 for December, a higher-than-forecast reading that was still the second-worst on record. The National Association of Realtors index of pending home resales fell 4% in November, and the Commerce Department said orders at U.S. factories slumped for a fourth month. With little prospect of growth in private demand, a turnaround may hinge on the tax and spending proposals President-elect Barack Obama is aiming at middle-class households and businesses. (Bloomberg)
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Federal Reserve officials are focused on driving down the spreads between U.S. Treasury yields and consumer and corporate loans, after cutting the main interest rate to almost zero failed to revive lending. Credit costs for households and businesses haven’t followed yields on government debt lower. Fifteen-year fixed-rate mortgages were at 5.06% last week, 2.59
percentage points above 10-year Treasury yields; the spread averaged 0.88 point in 2003, when the Fed slashed rates to 1%. Chairman Ben S. Bernanke sees the thawing of frozen credit markets as critical to a recovery, and is determined to try to prevent a second wave of credit distress as the U.S. weathers bad economic news over the next two quarters. The Fed is now looking at ways to revive lending by using its balance sheet to hold loans and bonds that investors don’t want. (Bloomberg)
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Europe’s inflation rate fell to the lowest in more than two years in December as oil prices plunged and consumer spending slumped, increasing the scope for the European Central Bank to reduce borrowing costs further. Consumer-price inflation in the euro area slowed to 1.6% from 2.1% in November, moving below the ECB’s 2% ceiling for the first time since August 2007, the European Union statistics office said yesterday. A separate report showed the region’s services industry
contracted for a seventh month. As the global financial crisis damps economic growth, slowing inflation may prompt the ECB to extend a series of interest-rate cuts that already has seen its key rate fall by 1.75 percentage points since early October. The euro extended declines after the inflation report, falling to a three-week low. (Bloomberg)
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U.K. house prices had the biggest drop since at least 1991 last year and consumer confidence slumped as banks rationed credit and homebuyers shunned the property market, Nationwide Building Society said. The price of a home declined an annual 15.9% in December to £153,048 (US$223,235), slipping 2.5% m-o-m, the mortgage lender said yesterday. Nationwide said “highly volatile” conditions make it difficult to give a forecast for house prices in 2009. The Bank of England will probably cut the benchmark interest rate further this week after reducing it in December to 2%, the lowest since 1951, economists say. Prime Minister Gordon Brown also plans to unveil new measures to bolster the economy as it endures its first recession since 1991. (Bloomberg)
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Toyota Motor Corp, the world’s biggest automaker, is to halt production at all its Japanese plants for a total of 11 days in February and March in a bid to reduce stocks of unsold cars as demand has slumped. Toyota had already announced a 3- day production halt this month at its 12 directly operated Japanese plants. (Reuters)
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December 19, 2008 Daily Highlights

MARKET REVIEW

KLCI Update
SHARE prices on Bursa Malaysia closed mostly higher yesterday led by gains on plantation stocks amid improved sentiment on optimism over the United States economic recovery, said dealers.Gains on most key plantation stocks helped elevate the benchmark Kuala Lumpur Composite Index (KLCI) to 880.50, up 18.00 points, after opening 2.31 points lower at 860.19 yesterday morning.Dealers said interest was largely seen in plantation stocks as the weaker US dollar has spurred sales of crude palm oil, thus boosting earnings.

Regional Update
Asian stocks saw modest gains yesterday as investors watched out for interest rate cuts, with Japan looking poised to slash its rate near zero to tackle a sharp economic downturn, dealers said. Markets were unmoved by a record 2.2 million barrels per day cut in output by the Opec oil group on Wednesday that was announced as it tries to battle falling prices.The Bank of Japan yesterday opened a two-day meeting which could cut interest rates down from the already low 0.3 per cent.The US Federal Reserve on Tuesday slashed its benchmark rate to virtually zero, sending the dollar plunging against the yen. Tokyo’s share prices closed 0.64 per cent higher. The Tokyo Stock Exchange’s benchmark Nikkei-225 index rose 54.71 points to close at 8,667.23. The broader Topix index of all first-section shares gained 0.23 points or 0.03 per cent to finish at
838.69.Sydney’s share Prices closed up 0.3 per cent. The benchmark S&P/ASX200 rose 10.6 points to 3,581.2, while the broader All Ordinaries was up 6.7 points at 3,521.7.SHANGHAI’s Shares closed up 1.97 per cent. The benchmark Shanghai Composite Index rose 38.88 points to 2,015.69 on turnover of 64.9 billion yuan.

US Stocks
U.S. stocks fell for a second day as a deteriorating credit outlook for General Electric Co. spurred concern the financial crisis is worsening, while oil’s retreat below $36 a barrel dragged down energy shares. The S&P 500 declined 2.1 percent to 885.28. The Dow Jones Industrial Average slid 219.35 points, or 2.5 percent, to 8,604.99, while the Russell 2000 Index of small companies fell 1.5 percent. Benchmark indexes drifted between gains and losses before sliding to session lows late in the day as GE sank.

MEDIA HIGHLIGHTS

PM: Take over of IJN only allowed if poor taken care
The Government will only allow the private sector to take over the National Heart Institute (IJN) if they fulfilled their responsibilities to the poor, Datuk Seri Abdullah Ahmad Badawi said.The Prime Minister said there might be good in Sime Darby Bhd’s bid to buy a stake in IJN because with privatisation, more people would have access to treatment despite rising operation and medicine costs.“It should not matter if the party who wants to take over can give an assurance that the lowincome group will be able to seek treatment there and charged reasonable rates,”
he said.“There are criticisms on the move to allow the private sector to buy a stake in IJN, that this will result in a hike in fees.“At the same time, we have to adapt to changes in the field of medicine and equipment.“The best experts are also needed, who may need higher remunerations. More beds are also needed.“All this incur additional costs. The deal depends on many things in the negotiations.“The Government needs to look into this carefully,” he told reporters at his office in Parliament House on Thursday.

Malaysia Nov inflation to ease on lower fuel prices
MALAYSIA’S inflation level is expected to have come down significantly in November, with the cut in pump prices on the back of plunging global crude oil prices. A Business Times poll of economists expects to see the consumer price index (CPPI) fall to 6.61 per cent year-on-year from 7.5 per cent in October.The Statistics Department will release the data on Wednesday. DBS Bank economist Irvin Seah said with global commodity prices having fallen in such dramatic fashion in recent months, there is every reason to expect inflation to ease sharply going forward. The relief of cost inflated pressures, said Patricia Oh of TA Enterprise, is mainly attributable to the subsequent downtrend in the transportation index. This was due to the sequential adjustment in petrol pump prices to RM2.15 and RM2.00 on October 31 and November 18, respectively. “Also, inflation is likely to decrease as the component of food and non-alcoholic beverages probably reduce gradually in November in tandem with the enforcement to bring down prices of essential good items,” she said.

Ringgit rises most since dollar peg ended
THE ringgit had its biggest gain since a fixed exchange rate to the dollar was scrapped more than three years ago, as slides in global borrowing costs spurred demand for higher-yielding assets. The currency climbed to a two-month high after the US central bank this week cut its key interest rate to about zero and the London interbank offered rate, or Libor, for three-month dollar loans reached a four-year low. The MSCI Asia-Pacific Index of regional shares climbed to the highest a month. “Asia seems to be attracting an uptick in equity flows,” said Dwyfor Evans, a strategist with State Street Global Markets in Hong Kong. “There’s just a lot of cheap money out there at the moment.” The ringgit rose 1.9 per cent to 3.4625 per dollar as of 5:18 pm yesterday in Kuala Lumpur. It earlier touched 3.4527, the strongest level since October 14, according to data compiled by Bloomberg.

Petronas unit buys Marathon Oil Ireland
PETROLIAM Nasional Bhd’s (Petronas) subsidiary Star Energy Group has bought the Irish unit of Marathon Oil Corp, the fourth largest US oil company, for US$180 million (RM628 million).In a statement, Marathon Oil said it expects the deal for wholly-owned Marathon Oil Ireland Ltd to conclude by the first quarter of next year.However, the deal does not include Marathon Oil’s 18.5 per cent interest in the Corrib natural gas development.Marathon Oil executive vice president David E Roberts said the sale, along with the sale of non-core assets, is part of Marathon Oil’s global asset review.”With the sale of Marathon Oil Ireland, our global asset portfolio review and the resulting sale of non-core assets has generated nearly US$1.2 billion (RM4.2 billion) in cash.

GE, GE Capital Ratings Outlook Cut to Negative by S&P
General Electric Co., the biggest issuer of U.S. corporate bonds, has a one-in-three chance of losing its AAA credit rating in the next two years as earnings deteriorate, Standard & Poor’s said. S&P cut the outlook on the company and that of its GE Capital finance arm to negative from stable. While the AAA ratings were left intact, S&P said in a statement today that it was concerned about cash flow and funding for the finance unit as global conditions worsen. GE Capital’s stand-alone rating, without parent support, would be A+, four levels below, it said.

Genworth Slashes 1,000 Jobs, Take $45 Million Charge
Genworth Financial Inc., the insurer spun off by General Electric Co., is slashing 1,000 jobs, or about 14 percent of the staff, after two quarterly losses. The insurer will record a $45 million charge in the fourth quarter in connection with the cuts, the Richmond, Virginia-based company said today in a statement. The firings will help reduce operating costs by $100 million to $150 million annually by the end of next year, the company said.

Bank of Japan May Cut Key Rate, Pump More Funds Into Economy
The Bank of Japan may trim interest rates today and introduce new ways of pumping funds into the banking system to bolster the ailing economy. Governor Masaaki Shirakawa and his colleagues may lower the overnight lending rate from 0.3 percent, the second reduction in two months, economists said. The bank may also offer to buy more government bonds from lenders, start purchasing commercial paper from them and broaden the range of collateral it accepts. The global economy is in the worst state since the Great Depression, intensifying the risk for a prolonged slump in Japan, Shirakawa told parliament on Dec. 16.

Zhou Stokes Speculation China Is Poised to Cut Rates
Chinese central bank Governor Zhou Xiaochuan stoked speculation that an interestrate cut is imminent, reiterating that falling inflation has added pressure for a reduction. The pressure “is based on the outlook for inflation,” Zhou said in Beijing today. “Inflation may slow further in the future.” China reduced borrowing costs by the most in 11 years last month to counter a deepening slump in the world’s fastestgrowing major economy. Zhou said on Dec. 16 that rates may fall further, after inflation cooled in November to 2.4 percent, the weakest pace in 22 months.

ECONOMY HIGHLIGHTS

ECB Cuts Deposit Rate, Lifts Marginal Lending Rate
The European Central Bankcut the interest rate it pays banks to deposit money with it overnight and lifted its emergency lending rate in an effort to jolt financial companies into lending more to each other. ECB President Jean-Claude Trichet and his governing council said after meeting in Frankfurt yesterday that from Jan. 21 the deposit rate will be reduced to 100 basis points below its benchmark rate and the marginal lending rate will be increased to 100 basis points above it. Both are now separated from the ECB’s key rate of 2.5 percent by 50 basis points. By lowering
incentives to leave cash with it, the ECB is seeking to encourage banks to lend more as the euro region economy suffers the first recession in 15 years. Trichet and other officials have expressed concern that following the U.S. Federal Reserve in cutting the benchmark rate closer to zero won’t boost the economy as long as banks are hoarding cash.

19 December 2008 Newz Bits

HIGHLIGHTS

On Malaysia
· Sime Darby plans massive development projects
· Proton denies being sued by Chinese JV partner
· Government may impose ceiling price on fertilizers
On The Global Front
· U.S. index of leading indicators dropped 0.4% m-o-m, 3.7% y-oy in October
· ECB cuts overnight deposit rates and lifts emergency lending rate
· IMF forecasts a U.S. recovery by early 2010
· Bank of Japan may trim interest rates today

Sime Darby Bhd (SIME MK, Buy, TP: RM7.30) will carry out a massive development project at the Negri Sembilan-Selangor border covering some 12,120ha. The development will be based on 5 themes – health, education. Sports, hi-tech and recreation – and will be located at its present Labu and Tanah Merah estates. Each theme will be developed as an integrated city and the cities will be interconnected. The first to be launched will be the Medical City, which is expected to take
of next year. (StarBiz)
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Sime Darby Bhd (SIME MK, Buy, TP: RM7.30), which was close to selling its healthcare division a few years ago, had decided to expand the business instead. This follows its proposal to acquire a 51% stake in the National Heart Institute (IJN), a move that has received the agreement in-principle from the government. The due diligence exercise is expected to be carried out at the start of the new year, and the whole exercise could be wrapped up in less than 5 months, with the purchase consideration being paid in cash. (Financial Daily)
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Proton Holdings Bhd has denied a report by a local daily that it was being sued for one billion yuan or RM520m by China’s Goldstar Heavy Industrial Co Ltd over the collapse of their joint-venture plan to build vehicles in China. In a statement to Bursa Malaysia yesterday, the national carmaker said it had not been served with any summons by its Chinese JV partner and was not aware of the basis or quantum of the purported claim. Proton said the parties had referred the dispute for arbitration, in accordance with the spirit of the JV agreement. (Financial Daily)
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Scomi Group Bhd’s subsidiary has won a US$12m (RM41m) drilling waste management (DWM) job with BP Norway. This is the first time that Scomi Oiltools (Europe) Ltd has secured a DWM tender with BP in Norway, which covers complete DWM solutions both offshore and onshore. The project is for up to four years with the option of a two-year extension. (BT)
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The government may make imported chemical fertiliser a controlled item, placing a ceiling on its price so as to ease oil palm planters’ burden. Generally, oil palm planters do not want to skim on fertiliser unless left with no other option. This is because the trees produce more fruits with fertiliser. But the severity of the situation was seen last month when some 200,000- odd oil palm planters, including the six biggest plantation companies, pledged to reduce fertiliser purchase in the next six months because of the high prices that were eating up their profits. The government is aware that fertiliser prices have yet to come down despite importers pledging to drop prices by 15%. (BT)
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After flip-flopping most of the session, Wall Street falls sharply and the Dow plunges more than 200 points, one day before a slew of options expire. A selloff on Wall Street accelerated in the last hour of a volatile session as traders square up positions for a handful of options that expire Friday, known as “quadruple witching.” The Dow Jones industrial average lost 219 points, or 2.5%.The broader Standard & Poor’s 500 index shed 19 points, or 2.1%, and the Nasdaq composite fell 27 points, or 1.7%. Oil prices fell below $37 a barrel Thursday, reaching levels not seen since June 2004. Crude oil for January fell $3.84 to settle at $36.22 a barrel. (CNNMoney)
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The Conference Board’s index of leading indicators dropped 0.4% from October, and 3.7% from a year before. Other reports showed first-time claims for unemployment benefits held close to a 26-year high and manufacturing in the Philadelphia region contracted for the 11th time this year. The drop in the leading index underscores economists’ projections that the recession will be the longest in the postwar era as banks restrict credit, home and stock values plunge and job losses mount. (Bloomberg)
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The European Central Bank cut the interest rate it pays banks to deposit money with it overnight and lifted its emergency lending rate in an effort to jolt financial companies into lending more to each other. ECB President Jean-Claude Trichet and his governing council said after meeting in Frankfurt yesterday that from Jan. 21 the deposit rate will be reduced to 100 basis points below its benchmark rate and the marginal lending rate will be increased to 100 basis points above it. Both are now separated from the ECB’s key rate of 2.5% by 50 basis points. (Bloomberg)
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The Bank of Japan may trim interest rates today and introduce new ways of pumping funds into the banking system to bolster the ailing economy. Governor Masaaki Shirakawa and his colleagues may lower the overnight lending rate from 0.3%, the second reduction in two months, economists said. The bank may also offer to buy more government bonds from lenders, start purchasing commercial paper from them and broaden the range of collateral it accepts. (Bloomberg)
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India’s inflation rate fell to the lowest since early March as demand slowed amid the global economic meltdown and a drop in crude oil costs led the government to cut retail fuel prices. Wholesale prices increased 6.84% in the week to Dec. 6 from a year earlier after gaining 8% the previous week, the commerce ministry said in New Delhi today. Economists expected an increase of 7.49%. Bonds rose amid speculation that slowing inflation will give the central bank room to add to three interest-rate cuts in the past two months as growth falters. India’s monetary policy should have been “more aggressive” to counter the impact of the global financial crisis, Arvind Virmani, the finance ministry’s chief economic adviser said yesterday. India’s 10-year bonds extended gains after the inflation report, pushing yields to a 4 1/2-year low of 5.54% as of 12:02 p.m. in Mumbai. (Bloomberg)
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The IMF cautiously forecast a US recovery by early 2010 and a British central banker said yesterday UK interest rates could hit zero, a level Japan’s are forecast to drop closer to this week. “There is reasonable probability… of the US economy starting to recover at the end of 2009 or the start of 2010,” International Monetary Fund (IMF) managing director Dominique Strauss-Kahn told Spanish newspaper Expansion. He based his view on the likelihood of the housing market having touched a low point and demand reacting to a fiscal stimuli, but said it was “plagued with uncertainty”. (Financial Daily)
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The global economy is likely to worsen in 1H09 with rising unemployment adding to the woes of governments, World Bank president Robert Zoellick said yesterday. He said an upturn in 2009 would depend on how governments cooperated among themselves to implement monetary and fiscal policy and whether they refrained from protectionism. He also said China’s leaders had “been struck by the depth and fallout in exports.” But China, armed with its huge foreign exchange reserves and government surpluses, was well-positioned to cope with the crisis, he added. Zoellick said the financial and economic problems that emerged this year could turn into an employment crisis in 2009, and pledged that the World Bank would make funds available to help poorer countries cope with the economic downturn. (Financial Daily)
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