Economy

US: Rates too low for too long could be risky. US interest rates being kept too low for too long could cause financial instability in future and stronger market expectations for a rate rise are "probably good", St. Louis Federal Reserve President James Bullard said. A relatively tight labor market in the US may also exert upward pressure on inflation, raising the case for higher interest rates, Bullard added. (Reuters)

US: Labor market is strong despite low participation. The US labor market is cyclically strong, despite low participation, St. Louis Federal Reserve President James Bullard said. A possible British exit from the European Union in a vote next month will not affect the FOMC's upcoming decision on interest rates, Bullard said. (Reuters)

EU: IMF report says Greece needs 'up-front' debt relief, lower fiscal target. Greece needs "up-front, unconditional" debt relief and a sharply lower budget surplus target to make its bailout viable and its debt sustainable over the long term, IMF staff said. In a new debt sustainability analysis, IMF staff said few countries have ever managed to achieve the 3.5% primary budget surplus that European lenders have demanded. (Reuters)

EU: Some euro zone wage data point to further drop in price expectations. The risk has increased that euro zone inflation expectations drop further and some wage data may already indicate that long term expectations are 'de-anchoring,' ECB chief economist Peter Praet said. (Reuters)

UK: Finance services chief says Britain faces barriers if quits EU. Britain would face trade barriers if it left the EU and its single market, the EU's financial services commissioner Jonathan Hill said. Financial services are Britain's biggest export earner and are flourishing, with London last year rated the world's most competitive financial center by the Global Financial Centres Index, Hill said. (Reuters)

China: Urges faster local government spending to support economy. China's local governments must quicken spending to help reduce the size of unspent budget funds and support the economy that faces downward pressure, the Ministry of Finance said. The comment came after data showed China's fiscal expenditures in April rose 4.5% from a year earlier, slowing sharply from a 20.1% jump in March. The government has pledged to ramp up fiscal support this year, boosting the fiscal deficit to 3% of GDP, after economic growth last year cooled to a 25-year low. (Reuters)

Japan: Economy remains in moderate recovery despite quake damage. Japan's government said that earthquakes on a southern island last month caused tens of billions of dollars in damage, but the impact was not severe enough to change its assessment that the economy remains in a "moderate" recovery. The quakes likely caused JPY2.4trn to JPY4.6trn (USD21.8bn-USD41.8bn) of damage to buildings and infrastructure such as roads and railways in hard-hit Kumamoto and Oita prefectures, according to the Cabinet Office. (Reuters)

Markets

Dayang (Neutral, TP: RM1.35): To divest 25% stake in Perdana Petroleum. Dayang Enterprise Holdings, which is keen to maintain the listing status of its subsidiary, Perdana Petroleum, will divest at least 25% of the group's total stake. Integrated offshore service provider Dayang currently owns more than 98% equity in Perdana Petroleum. Perdana Petroleum executive director Bailey Kho Chung Siang said the company was already in talks with some interested parties for the said stake. He, however, refused to disclose the potential parties, saying it was too early to announce. (StarBiz)

Sime Darby (Neutral, TP: RM7.55): Looking to list port in China. Sime Darby is looking to list Weifang Port in China as part of a plan to monetise its assets and maximise returns. Sime Darby Utilities SB managing director Timothy Lee said that the Weifang Port “has been profitable since day one of the takeover”, and is ranked by BMT Consulting as one of the most efficient and cost-effective ports in China. In the last financial year, Weifang Port – a sea-fronting port at the central northern region of Shandong Province – posted a pre-tax profit of just under RM90m on a revenue of RM300m. (StarBiz)

UEM Sunrise (Outperform, TP: RM1.85): To strengthen fundamentals to steer growth. UEM Sunrise will focus on strengthening its fundamentals to steer growth, amid the challenging property market this year. Executive director Datuk Izzaddin Idris said the company had outlined some key priorities to focus on this year among them -- establishing a comprehensive marketing strategy, intensifying systems and processes to ensure timely and quality delivery to build its reputation as a value-driven developer. He said the company expected the demand for the property sector to remain subdued as the Malaysian economy slowed, tight lending conditions continued and consumer, as well as, business sentiment remained passive. (StarBiz)

Reach Energy: Plans to raise up to RM180m from private placement. Reach Energy is proposing to raise up to RM180m from a private placement to partly finance the purchase of shares of dissenting shareholders who will vote on its maiden acquisition. Special-purpose acquisition company (SPAC) Reach had announced its maiden acquisition on Mar 5, involving a 60% stake in a producing onshore oil and gas field called Emir-Oil in Kazakhstan for USD154.9m. It has yet to get the necessary approvals from the authorities. (StarBiz)

Hwang Capital: Gets voluntary takeover bid. Hwang Capital (M) (HCM) has received a voluntary takeover offer from Hwang Enterprises SB and Hwang Lip Teik (HLT) to acquire all the remaining ordinary shares which are not already owned by the joint offerors for RM2.65 cash per share or RM469.4m. As of May 20, the joint offerors had 78.1m shares, or a 30.6% stake, in HCM. Affin Hwang Investment Bank, on behalf of the joint offerors, said HLT, a controlling shareholder with a 61.6% stake in Hwang Enterprises, is the ultimate offeror of the takeover offer. (StarBiz)

TH Heavy: To go international this year. TH Heavy Engineering plans to go international this year to ensure it remains profitable following continued challenges in the oil and gas industry due to lower oil prices. CEO Nusral Danir said the Main Market-listed company was in discussions with several parties on potential offshore fabrication projects in Myanmar, Thailand and India. “We are hopeful of getting good news this year,” he said. (StarBiz)

MARKET UPDATE

US investors were once again undecided on the impact of a potential June rate hike over their investments, with sentiment clouded by manufacturing numbers reported on the day which fell below economists’ expectations. While Federal Reserve officials have been “guiding” of a possibility in recent weeks, economic data releases have thus far been at best, mixed. Crude oil prices slipped for a fourth consecutive day, though not by much, as Canadian producers work on getting outputs back to normal. For the day, the Dow Jones Industrial Average slipped 0.1% while the S&P 500 was a notch ahead at -0.2%. European markets were hampered by a host of stock-specific issues, dampening overall sentiment in the process. The share price of Bayer tumbled about 6% after revealing its USD62bn all-cash offer for Monsanto amid concerns that it is overly-stretching its balance sheet to finance the deal. Fiat Chrysler Automobiles led automakers lower after being accused of manipulating pollution emissions by the German Transport authority, a charge it flatly denies. Italy’s FTSE MIB led the major markets lower, slumping 2.7% overnight. Benchmarks in Spain, France and Germany all fell 0.7% while UK’s FTSE 100 slipped 0.3%. Greece’s ASE Index bucked trends however, gaining 1.5% as the country’s creditors prepared to disburse €11.2bn once a review of its bailout plan is successfully completed. Most Asian markets extended last Friday’s gains, with the biggest gains seen in Taiwan as share prices of Apple vendors Taiwan Semiconductor Manufacturing and Hon Hai Precision Industry surged on expectation of better-than-expected demand for the iPhone 7 which both have been told to prepare for. Elsewhere, the Shanghai Composite Index, Straits Times Index and FBM KLCI rose 0.6%, 0.1% and 0.4% respectively though the Hang Seng Index fell 0.2%.

Reach Energy plans to raise up to RM180m via a private placement to facilitate the acquisition of a 60% stake in Palaeontolol BV for USD154.9m, the latter owning the Emir oilfields in Kazakhstan. Weaker-than-expected earnings reports were a recurring feature overnight – Genting Plantations recorded a 48.8% decline in its 1QFY16 net profit to RM26.9m, Lafarge Malaysia reported a 72% slump in its 1QFY16 net profit to 20.7m (though partly affected by integration costs) and Pos Malaysia saw its full-year net profit fall by slightly more than 50% to RM63.1m while Chemical Company of Malaysia and TH Plantations reported losses, amongst many others.

Source: PublicInvest Research - 24 May 2016