Thursday, April 10, 2014

IMF Lifts Malaysia’s GDP Forecast To 5.2pc

KUALA LUMPUR: The International Monetary Fund (IMF) yesterday upgraded Malaysia’s growth forecast to 5.2 per cent this year and five per cent next year.

Malaysia’s growth forecast came in above the 4.9 per cent average growth forecast projected for five Asean economies. The rest are Thailand, Indonesia, Vietnam and the Philippines.

This is against a backdrop of uneven developments in the Asean economies, it warned, referring to Indonesia and Thailand, where investor sentiment is expected to be subdued. 

“Malaysia and the Philippines, however, are on a more positive trajectory,” it added. 

Ahead of its spring meetings for the IMF and the World Bank in Washington from tomorrow till April 13, the fund described the global economy as on a recovery trend, albeit uneven. 

Much of the impetus for growth is expected from advanced economies. 

Although downside risks have diminished overall, lower-than-expected inflation poses risks for advanced economies. There is also rising financial volatility in emerging market economies, and increases in the cost of capital will likely dampen investment and weigh on growth. 

Malaysia, the Philippines and Thailand are relatively more integrated with global trade and financial markets, and, in Malaysia’s case, it is also relatively more exposed to advanced economies in the trading of goods, unlike emerging markets like Brazil and India. 

Among its key findings, the IMF said the growth in the United States economy would typically raise emerging markets’ growth through a small boost to emerging market economies’ terms-of-trade growth. 

“The impact effect tends to be stronger for economies that are relatively more exposed to advanced economies in trade, for example, Malaysia and Mexico.” 

Adverse external financing shocks hurt economies  more when they tend to be more exposed to capital flow volatility, but the effects are less acute for some economies, despite their financial openness, which could be due to relatively strong macroeconomic positions like Malaysia. 

Chile and Malaysia are among the few economies that have tended to hold their domestic interest rates steady or have even cut them in response to higher EMBI (emerging markets bond index) yields. 

Comparing the correlation between economies with China and the US, the IMF said Argentina, Brazil, Colombia, India, Indonesia, Thailand, and Venezuela were closed related with China than that with the euro area or the US. 

In contrast, output growth in Chile, Malaysia, Mexico, Russia and Turkey is more correlated with growth in the US than with growth in China.

--BTimes

Monday, March 17, 2014

RHB: Overweight On Oil & Gas Sector

KUALA LUMPUR: RHB says oil & gas (O&G) sector’s fourth quarter financial year 2013 results were disappointing, as earnings saw more misses than hits due to lofty expectations.

"Most offshore  support  vessel (OSV) players booked  weak  performances  despite  the  multi-billion-ringgit  contracts awarded in current year 2013. We maintain our OVERWEIGHT call on the sector as we  expect  Petronas  to  ramp  up  spending.  Our  Top  Picks  are SapuraKencana Petroleum (SAKP), Dayang, Coastal Contracts and Wah Seong, said RHB in its note today.

According to RHB most  of  the  O&G  stocks under its coverage  booked disappointing results  in fourth quarter current year 2013,  with  more earnings missing rather than hitting estimates.  Excluding Yinson, only one out of the 15 stocks under our coverage outperformed estimates  in current year 2013,  while  six  were  in line.  

The  misses  were largely  due  to  our high expectations  that  most  of  the  companies  under  our  coverage  would benefit from Petronas’ planned MYR300 billion capex spending. Most of the OSV  players  disappointed  despite  the  multibillion contracts awarded by Petronas last year, as work orders from the company  had been slow.  That  said, most management teams  generally indicated that activities should pick up by second half of current year 2014.

The share price of some  small-cap companies  performed well last year on expectations that part of the 20 identified marginal fields would  be  awarded  to  them.  However,  a  delay  in  the  Refinery  and Petrochemicals  Integrated  Development  (RAPID)  project  by  Petronas prompted  a  selloff of RAPID-related stocks.  Most OSV  players reported disappointing results from lower fleet utilisation rates throughout current year 2013. 

Our  top  big-cap  pick  is  SAKP ,  in  view  of  the  potential  upside  to  its  current  share  price weakness,  due to  the uncertainty over its Shariah-compliant status.  The consolidation  of  Newfield’s  upstream  assets  may  prompt  us  to  raise SAKP’s fair value  by 41 sen. 

Meanwhile,  Dayang  Enterprise   and  Coastal  Contracts  are our mid-cap favourites,  thanks  to  their  long-term earnings visibility.  For  small-caps,  we prefer  Wah  Seong  Corp,  as the group  begins  to see  a strong recovery  in  its O&G segment and higher orderbook replenishment. 

Due  to  expectations  that  Petronas  would  award  more  risk-service contracts  (RSC)  in  FY13,  some  small-cap  stocks  saw  record  price  rallies  –  Scomi Energy Services and Uzma’s share prices soared by 224 per cent  and 334 per cent  respectively in financial year 2013.

SES was reported to be bidding  for  the  OphirRSC,  a  marginal  field  off  the  coast  of  Terengganu ,  with  its  Australian  partner  – Octanex   –  and  Petronas’  wholly-owned,  marginal  oilfield  expert, Vestigo Petroleum. Uzma was also tipped to win a RSC.

The  marginal  oilfield  expert.  Vestigo  was  set  up  in  mid-2013  and  is  part  of Petronas’  exploration  &  production  unit,  Petronas  Carigali  (Carigali).  It  is  largely involved  in  the  optimisation  of  small,  marginal  and  mature  fields,  unlocking  value through operational, technical and cost-effective methods. In short, Vestigo oversees the development  of  marginal fields,  while  Carigali focuses on developing larger and complex fields. 

Keith Collins  –  previously of Petrofac Malaysia  –  was appointed as Vestigo’s chief executive officer (CEO) in Oct 2013. He brought in more than 30 years of experience in management, drilling  and  well completion,  as well as  field development activities. Under his helm, we believe the Malaysian corporates – by teaming up with Vestigo –could  take  charge  of  marginal  field  developments  without  foreign  involvement.

Meanwhile, we would not be surprised that the first-generation RSC winners – SAKP, Dialog  Group  and  Petra  Energy  –  would  be taking the lead in such projects  with enough knowledge transfer from their respective foreign partners. 

Activities have  yet to  gain traction.  The OSV  and  floating production, storage & offloading (FPSO) segment recorded a mixed performance in fourth quarter. Of the eight stocks of  this  sub-segment,  only  COCO  outperformed  our  expectations  while  Dayang and Perdana  Petroleum  were in line with our fullyear forecasts.

The other OSV & FPSO players  disappointed, largely  due to  lower vessel utilisation rates. We understand that topside major maintenance and hook -up commissioning & construction (TMM & HuCC) as well as transport & installation (T&I) work orders from Petronas  have been slow. Some corporations  attributed this to the monsoon  season,  which  is  expected  to  be  over  by  May.  Hence,  we  expect  some OSV  players,  namely  Dayang,  Alam  Maritim  Resources  and PETR to see a pickup in second half 2014 earnings as offshore activities resume. 

We do not  expect  Petronas to dish out multi-billion-ringgit projects  again  this year. That  said,  we  do  not  discount  the  possibility  of  sub-contracts  indirectly  benefitting other  players  like  AMRB,  Perisai  Petroleum  Teknologi  and Bumi Armada, which failed to clinch any contract during the bidding process last year. 

The  investment  community  is  concerned  about  the economic  viability  of  Petronas’  RM60 billion  Refinery  &  Petrochemicals  Integrated Development  (RAPID)  project.  The  project’s  final  investment  decision  (FID)  was initially scheduled  to be announced in June 2013, but this has been delayed to March 2014.

The project also faces challenges in land acquisition and relocation. We believe the concerns are overdone and the project will receive the  go-ahead in the next one month, although the size of the project could be scaled down by 20-30 per cent. 

While  the  original  size  of  the  project  is  estimated  at RM60 billion,  we  think  a RM40 billion capex will be a more realistic target given  lukewarm demand from foreign investors. To  date, the project has signed up several names like Italy's Versalis SpA, Japan's Itochu, Bangkok-listed PTT Global Chemical and Germany's Evonik. Stocks  that  will  benefit  from  RAPID  are  Dialog,  KNM  Group   and Muhibbah Engineering. 

We expect M&A activities to heat up in the next 12 months as companies try to chase higher earnings. In our view, offshore vessel owners  should expand overseas or undertake M&As  to benefit from economies of scale and improve profitability. The local market is getting increasingly saturated with fewer reinvestment opportunities.

--BTimes

Friday, March 14, 2014

Malaysian Capital Market Grows 10.5% In 2013

PETALING JAYA: The Malaysian capital market grew by 10.5% to RM2.7 trillion in 2013, driven by steady growth in key market segments on the back of robust domestic fundamentals, said the Securities Commission Malaysia (SC). 

SC in its annual report 2013 released yesterday, said the market remained resilient despite volatility which affected emerging markets globally. 

It said the bond market ended the year at RM1 trillion and maintained its position as the third-largest in Asia relative to gross domestic product (GDP) while equity market capitalisation grew to RM1.7 trillion with the benchmark index rising 10.5%, making the market one of the top performers in Asia. 
 SC said significant gains were also recorded by the domestic small-cap index following increased participation from institutional funds and greater interest by retail investors. 

It said the capital market continued to be a major source of financing with RM94 billion raised through corporate bonds and initial public offerings (IPOs). It said bond issuances accounted for 91% of financing raised. 

The breadth and depth of the market underpinned the strongest period of capital-raising on record with a total of RM240 billion raised over the last two years, it said. 

The SC said the fund management industry continued to play an important role in mobilising domestic savings, with assets under management (AUM) growing by 16.5% to RM588 billion. 

It said unit trust funds continued to be the largest contributor to the growth in AUM, with net asset value increasing to RM336 billion, equivalent to one-fifth of stock market capitalisation. 

The SC said the Islamic capital market grew by 8.8% to RM1.5 trillion, with syariah-compliant assets representing 56% of the overall capital market. 

It said Malaysia maintained its leadership role as the world's largest sukuk market, accounting for 69% of global sukuk issuances in 2013. 

A revised syariah screening methodology for listed equities was implemented in November 2013 to further increase the attractiveness of Malaysia's Islamic equity and fund management segments to international investors, it said. 

In 2014, SC's regulatory agenda will focus on enhancing efficiencies and reducing time to market, further strengthening regulation and supervision of market institutions and facilitating market access. 

The SC and regional regulators will collaborate to implement the Asean Capital Markets Forum framework for the cross-border offering of collective investment schemes in the first half of 2014. 

The commission said it will also facilitate more cross-border and multi-currency bond and sukuk issuances as well as assess potential new fixed income products such as high-yield bonds with a view to broaden the credit spectrum of investible asset classes. 

Leveraging on Malaysia's significant Islamic fund management segment, the SC said it will continue to work with the industry to build their capabilities and enhance cross-border linkages. 

The SR-i Sukuk guidelines will be introduced this year to facilitate syariah-compliant financing for and investments into socially responsible businesses, it added.

--TheSun