The Star Online: Business
The Star Online: Business |
- May industrial production growth exceeds expectations
- MTEM criticises Govt for lack of transparency on US-led trade talks
- Expect pressure on palm oil prices
| May industrial production growth exceeds expectations Posted: KUALA LUMPUR: Malaysia's industrial production index (IP) rose 3.4% in May from a year ago, exceeding economist expectations of a 2% growth. Citigroup Inc economist Kit Wei Zheng, who has maintained gross domestic product (GDP) growth at 5.2% year-on-year, said in a report that the April-to-May data continued to point to a pick-up in second-quarter GDP. "Manufacturing appears on track to provide a sequential boost – April-to-May seasonally-adjusted manufacturing industrial production levels were 3.4% above their first-quarter average – while mining is now above water at 0.3% above the first quarter," he pointed out. Kit said that April-to-May electricity industrial production levels were 0.9% above the first quarter, hinting at still resilient domestic demand, with consumption goods imports surging in April-to-May, while capital goods imports remained elevated. "With election uncertainties behind us, the implementation of approved projects could keep investment growth robust in the second half. Together with rising intermediate goods imports, this could place some near-term pressure on the current account, and net exports would likely remain a drag until exports picked up, likely also in the second half," he said, Meanwhile, Alliance Research chief economist Manokaran Mottain cautioned that if recovery in overseas demand failed to materialise in the short term, recent gains in manufacturing output might likely end up as stocks, thus dragging down the overall GDP growth. "Going by the recent data on production and export activities, we are now projecting a GDP growth of 4.7% in the second quarter, rebounding from +4.1% in the first quarter. With an anticipated recovery in the second half, we maintain our full-year GDP forecast at 4.8% in 2013," he said. The Statistics Department said yesterday the increase was contributed by a 3.1% growth in the manufacturing index, mining (4.1%) and electricity (4.8%). The department said the IPI in April 2013 had been revised to a positive growth of 4.6% year-on-year, instead of 4.7%. "In seasonally-adjusted terms, the IPI in May 2013 decreased by 0.2% month-on-month. The decrease was particularly due to the decrease of the manufacturing index and electricity index by 1.1% and 1.0%, respectively. The mining index recorded an increase of 2.9%," it said. The department said the manufacturing output for May rose 3.1% year-on-year. Output for April increased by a revised 5.9%. The major sub-sectors which recorded increases were petroleum, chemical, rubber and plastic products (4.2%); non-metallic mineral products, basic metal and fabricated metal products (4.8%); transport equipment and other manufactures (17.3%). It said on a seasonally-adjusted month-on-month basis, manufacturing output fell 1.1% in May 2013. The mining sector recorded a 4.1% increase in May 2013 year-on-year due to a higher crude oil index (0.7%) and natural gas index (11.3%). When compared with the previous month of April, the seasonally-adjusted output for the mining sector increased by 2.9%. As for electricity, its output increased 4.8% in May 2013 year-on-year. In seasonally-adjusted terms, electricity output dropped 1% from April. |
| MTEM criticises Govt for lack of transparency on US-led trade talks Posted: KUALA LUMPUR: The Malay Economic Action Council (MTEM) has called for a "meaningful consultation" with the International Trade and Industry Ministry (Miti) on the controversial Trans-Pacific Partnership Agreement (TPPA). "We have met Miti at least three times in the past but no progress has been made," MTEM chief executive officer Mohd Nizam Mahshar said at a briefing yesterday. He said he would thus be having a debate with Miti minister Datuk Seri Mustapa Mohamed today on the TPPA. Nizam said the Government has been negotiating the TPPA, without any public consultation despite the negotiations having started two years ago. So far 17 rounds of discussions have been conducted. The 18th round of TPPA discussion would be held in Kota Kinabalu, Sabah beginning next week. The TPPA is a multilateral free trade agreement currently being negotiated by 12 countries, led by the United States. The agreement covers a broad spectrum of areas and has 29 chapters. The signatory countries are Australia, Brunei, Canada, Chile, Malaysia, Mexico, New Zealand, Peru, Singapore, US, Vietnam and Japan. The TPPA is expected to be concluded and signed in October 2013. Mohd Nizam said some leaked documents of the TPPA have shown that within the agreement there were clauses that would allow overseas companies to sue the Govern-ment, adding that Malaysians would also have to pay higher prices for medicines when TPPA comes into force. In addition, he said specific provisions in the TPPA on intellectual property protection would enable US companies to penetrate local markets, making it harder for local companies to compete. "We have been requesting Miti to conduct a study on the impact of TTPA on our economy, society and its benefits for Malaysia," Mohd Nizam said, adding that a study by United Nations Develop-ment Programme (UNDP) was not disclosed to the public. Mohd Nizam said MTEM had written to Miti to ask for assurance for 16 items but the ministry had given "empty assurance" in a 14-page reply. He added that MTEM was also concerned about the lack of transparency surrounding the TPPA negotiations. "The Government has not done any proper consultation with the industry." Asked if MTEM would resort to having any protest, Mohd Nizam said: "As an organisation, we are not planning for any protest in the form of street demonstration but we will not stop any of our members to do so." |
| Expect pressure on palm oil prices Posted: PLANTATION SECTOR Neutral By PublicInvest Research PALM oil inventories contracted further to the 1.6 million-tonne level in June. The healthy fundamentals, however, have not brought positive growth to crude palm oil (CPO) prices lately as the market has started anticipating the high production period kicking in soon, which will not bode well for the inventory prospects. Meanwhile, June's average CPO price stood firm at RM2,389/tonne versus June 2012's average of RM2,964/tonne. We are maintaining our calendar year 2013 and 2014 average CPO prices of RM2,450/tonne and RM2,550/tonne respectively. Inventories continued inching downwards, slipping 9.3% month-on-month. Meanwhile, stock/usage ratio remained at below 10% for the third month, standing at 8.5%, mainly attributed to continuous demand from overseas and local consumers despite higher production compared with last month. Palm oil exports increased marginally by 0.3% month-on-month but declined 3.1% year-on-year. Lower month-on-month demand from India (-37.9%), Pakistan (-9.2%) and the United States (-14.4%) were cushioned by better demand from China (+16.2%), EU (+33.5%) and other nations (+4.8%). We think the weak rupee has dented the demand for more palm oil imports as the Indian currency against US dollar had hit a historic low in June. In addition, orders have also been locked in before the start of the Ramadan period, hence, there is no surprising surge in demand from Middle East countries. Peninsular Malaysia production gained 6.8% to 797,680 tonnes while east Malaysia declined 3% attributed to lower production from Sabah, dropping about 8.2%. Overall, FFB yield improved from 1.36 tonnes/ha to 1.39 tonnes/ha in June. As oil palm trees will be entering the high-production period soon, we could eventually see a surge in FFB production. According to independent market surveyor Intertek, the first 10 days of July's exports had declined nearly 16% compared with the same period in June. We maintain our RM2,450/tonne average CPO price forecast for 2013 and RM2,550/tonne for 2014. RANHILL ENERGY & RESOURCES BHD By Kenanga Research Not rated Target price: RM1.90 RANHILL Energy and Resources Bhd, which is en-route for a listing on July 31, offers two different distinct earning streams: water and power concession businesses with stable earning streams; and oil and gas segment where earnings growth could be explosive. The water division, which accounts for more than 50% of the group's earnings, is one of the beneficiaries of the high profile Iskandar Malaysia development and the RM60bil RAPID project. While oil and gas earnings are likely to be challenging in the near term as the key project – the Malacca regasification terminal (RGT) – is coming to an end, its power segment, which owns the largest independent power producer (IPP) in Sabah, will provide good earnings visibility for the next 20 years. In all, financial year ending Dec 31, 2013 (FY13) earnings are expected to decline given the recurring RM54mil sukuk expenses and RM18mil corporate expenses but FY14 earnings are expected to rebound by 17% mainly underpinned by the water segment. We use a breakup valuation methodology to derive a fair value of RM1.90/share, implying calendar year 2014 price-earnings ratio (PER) of 10.4 times. At RM1.85/share, we believe the initial public offering (IPO) is fair as it valued at 2104 10.1 times PER which is in line with FBMKLCI small cap valuation. Nonetheless, for dividend seeking investors, Ranhill could be a suitable candidate given its sustainable 4%-5% yield. Given its exclusive licence from the Minister of Energy, Green Technology and Water to provide "source-to-tap" water supply services to end-customers in the entire state of Johor, and its 30-year concession to lease water infrastructure from Pengurusan Aset Air Bhd (PAAB), Ranhill should benefit from the rapid development in Iskandar Malaysia and the Petronas RM60bil RAPID project in Pengerang. On the other hand, Ranhill is currently carrying out investment evaluation and feasibility studies on several water and waste-water treatment projects in China which target to increase water treatment capacity from 270 million litres per day (MLD) to up to 1,000 MLD over next three years from 2012. Through its long-term relationship with WorleyParson, RanhillWorley (RWorley) has access to over 40,000 global personnel, as well as engineering/project management delivery tools, making RWorley a competent and cost competitive player. Moreover, Ranhill has also entered into a three-year memorandum of agreement with Samsung in April 2013 to co-develop and pursue mutually beneficial business dealings for the tender of EPCI projects worldwide. By leveraging on this relationship with WorleyParson and Samsung, RWorley is well positioned to secure Enhanced Oil Recovery (EOR) and engineering, procurement, commissioning and installation (EPCI) contracts both locally and globally. Its power business is operated through 60%-owned subsidiary Ranhill Powertron I (RPI) and 80%-owned subsidiary Ranhill Powertron II (RPII) with PPAs with the Sabah Electricity to provide an aggregate capacity of 380MW for 21 years under a long-term concession agreement. This concession agreement will ensure a stable secured power earning stream for Ranhill. We project the group to post RM150.4mil and RM175.5mil net profits for FY13-FY14 from RM199.8m in FY12. The sharp decline is mainly due to recurring RM54mil sukuk expenses and RM18mil corporate expenses after the listing which was previously borne by the previous listed vehicle – Ranhill Bhd. Nonetheless, top line growth is seen at 1%-7% driven mainly by the Water segment with 6.8%-7% growth. Risks to the stock are: downturn in oil & gas sector; slower-than-expected China water industry growth; and inability to secure new PPAs and water concessions upon expiry of current ones. BENALEC HOLDINGS BHD By Affin Investment Bank Trading buy (maintain) Target price: RM1.98 BENALEC Holdings Bhd announced that Heritage Land, a wholly-owned subsidiary of Benalec Sdn Bhd, had on July 10 entered into sale and purchase agreements (SPAs) to dispose of eight pieces of land in Malacca for RM54.3mil at RM30 per sq ft; SPA with Highbond Capital to dispose of all those four pieces of leasehold vacant land in Malacca for a sale consideration of RM27.2mil; SPA with Gigayear Revenue to dispose of all those four pieces of leasehold vacant land in Malacca for a sale consideration of RM27.2mil. The total consideration for the eight pieces of land measuring in aggregate 16.8ha is RM54.3mil, which works out to RM30 per sq ft. The sale considerations to be paid by the purchasers are RM5.4mil upon signing of the SPAs and the balance within three months from the date of the SPAs. All the four pieces of land under each of the agreements are adjacent to each other and the two blocks are separated by an access road. These parcels of reclaimed land were received from reclamation projects, which involved settlement "in kind". The land disposal is expected to result in a net gain of RM7.1mil to be booked in the financial year ending June 30, 2014 (FY14) and raised net asset per share from 64 sen to 65 sen. We have assumed land sale gain of RM70mil in FY14 and RM49mil in FY15 and the land disposal gain announced is within expectations. We continue to expect the massive land reclamation projects in Tanjung Piai and Pengerang to significantly drive its earnings and valuation. The group has until Dec 11, 2013 to finalise the terms and conditions of the SPA with 1MY Strategic Oil Terminal Sdn Bhd and The State Secretary, Johor (Inc) to undertake the reclamation works and sale of approximately 1,000 acres of land off the coast of Tanjung Piai for the purpose of constructing and operating a crude oil and petroleum storage facility together with a private jetty. We maintain our FY13 to FY15 forecasts, revised net asset value-based price target of RM1.98 and "trading buy" call for Benalec. TENAGA NASIONAL BHD By PublicInvest Research Outperform (maintain) Target price: RM8.85 THE media reported that Tenaga Nasiaonl Bhd (TNB) and its joint-venture (JV) partner Kharafi National of Kuwait had recently signed a contract sealing the RM1bil deal with the Kuwaiti government for the operation and maintenance of a co-generation plant in Kuwait. To recap, the group announced that it won the contract in January this year. While we do not expect significant contributions with TNB owning a 50% stake in the JV, it is nonetheless a positive move for the group in line with their goal of expanding their non-regulated business and diversifying income streams beyond Malaysia. TNB's wholly-owned subsidiary TNB REMACO, together with JV partner Kharafi National of Kuwait, were awarded the contract for the operation and maintenance of a 780MW co-generation plant in Kuwait in January this year. The plant is owned by Kuwait's Ministry of Electricity and Water and located approximately 40km from Kuwait City. The contract, valued at Kuwaiti dinar 88.9 million Kuwaiti dinar (circa RM1bil) is for a period of seven years. We understand from the management that TNB holds a 50% stake in the JV. Hence, we estimate the contract should yield an average of RM70mil per annum. While the contribution is a drop in the bucket compared with TNB's annual revenue of over RM30bil, it is nonetheless a positive move for the group in line with their goal of expanding their non-regulated business. TNB's non-regulated business recorded revenue of RM2.3bil in the financial year ended Aug 31, 2012 (FY12) (FY11: RM1.9bil), and the group plans to grow this to RM5bil by FY15. We are keeping our earnings estimates unchanged. We continue to like TNB as the biggest beneficiary of structural reforms in the local power sector. With the commissioning of the Malacca RGT, the group's fuel security is assured, together with increased certainty of tariff hikes next year. Softer coal prices would also boost the group's earnings, which will be announced next week, while the potential win of additional power concessions would add to the group's capacity and future growth. We reiterate our "outperform" call with a discounted cash flow-derived target price of RM8.85. |
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