Weak momentum persists

FEATURE CALLS Malaysia | 1Q16 Results Roundup Weak momentum persists Chew Hann Wong

NEWS Outside Malaysia Other News

MACRO RESEARCH MY: 1Q16 Results Roundup Strategy Research by Chew Hann Wong Weak momentum persists Post 1Q16 results reporting season, our 2016F/2017F KLCI core earnings forecasts are cut by -3.8%/-3.4% and we now expect slower +1.1%/+7.7% growth compared to +5.1%/+7.3% previously. We also lower our end-2016 KLCI target to 1,710 from 1,780 (-4.0%), tagging valuations to unchanged 16x 12M forward (2017) PER, at about its mean. We continue to take a defensive stance in terms of equity positioning, but there are potential developments that may provide pockets of opportunities. Chew Hann Wong    (603) 2297 8686    wchewh@maybank-ib.com

NEWS Outside Malaysia: U.S: Manufacturing unexpectedly accelerates amid growth signs. Signs of better U.S. growth are cropping up, including in manufacturing, which has been a laggard of the economy. Activity at factories unexpectedly expanded at a faster pace in May, helped by an increase in orders, the Institute for Supply Management reported. The Tempe, Arizona-based group’s index climbed to 51.3 from 50.8 in April. (Source: Bloomberg) U.S. Economy grows modestly as job market tightens, Fed says. The U.S. economy expanded at a modest pace across most of the country since mid-April, causing the labor market to tighten as employers continued adding jobs and nudging wages higher, a Federal Reserve report showed. “Employment grew modestly since the last report, but tight labor markets were widely noted,” according to the Fed’s latest Beige Book, an economic survey published eight times a year. “Wages grew modestly, and price pressures grew slightly in most districts.” (Source: Bloomberg) Brazil: Economy shrinks less than forecast in 1Q 2016. Latin America’s largest economy shrank less than all but two economists expected in the first quarter, indicating Brazil may be close to hitting bottom after a confidence crisis scuttled demand and plunged the nation into its worst recession in decades. Brazil’s gross domestic product contracted 0.3% in the three months ended in March, after a revised 1.3% drop the previous quarter, the national statistics institute said Wednesday in Rio de Janeiro. (Source: Bloomberg) China: Wage growth accelerated last year, defying the slowest economic expansion in a quarter century, as the government pushed ahead with its strategy of boosting incomes and consumption to cut reliance on fading heavy industries. The average annual urban wage increased 10.1% last year to CNY 62,029 (USD 9,410), according to the National Bureau of Statistics, to post the first acceleration since 2011 and exceed the 9.5% pace of growth in 2014. The number doesn’t cover the country’s 190 million who are self-employed or workers at some private enterprises. Policy makers have increased some minimum wages and given better raises to government employees to help cash-rich consumers spend more on everything from cinema tickets to smartphones as the economy shifts from its reliance on manufacturing and construction. (Source: Bloomberg) Indonesia: Fails to win full investment grade as S&P holds rank. Indonesia’s long wait to win full investment grade rank just got longer after S&P Global Ratings maintained its junk status because of weak fiscal performance. S&P affirmed the country’s BB+ rating, while leaving the door open for a future upgrade by maintaining a positive outlook. It cited forecasts for larger budget deficits in coming years and a decline in corporate credit quality. (Source: Bloomberg) Other News: Barakah: Bidding for jobs worth MYR1.7b. Barakah Offshore is bidding overseas and local projects worth MYR1.7b. The projects are combination of upstream and downstream works. The bulk of the bids, about MYR1.2b are local projects and the remaining MYR200m are from overseas. (Source: The Edge Financial Daily) Scomi Engineering: Bags MYR500m more works for Brazil monorail job. Scomi Engineering (SEB) has received an additional MYR500m worth of works for its construction of the monorail system in Sao Paulo, Brazil, bolstering the contract’s value from MYR97.5m initially. With the additional works for Line 17- Gold Sao Paulo monorail project, SEB’s order book stands a MYR2.1b. The Line 17- Gold is targeted for completion in the first quarter of 2018. (Source: The Edge Financial Daily) Ranhill: Eyes power plant projects in Myanmar, Sabah. Ranhill Holdings is eyeing a gas-fired power plant project in Myanmar and have submitted a proposal to build a new power plant in Sabah. The company is participating in a tender bid in Myanmar to build a 400MV gas-fired power plant. Ranhill currently holds a 37% share of the market in Sabah with plans to expand the current capacity of 380MV to 1000MV by 2020. The company is in the final stages of talks to divest 60% in Ranhill Water Technologies (Cayman) Ltd (RWT Cayman) to a State-Owned Enterprise (SOE) in China. (Source: The Sun Daily) WZ Satu: To acquire SILK SB. WZ Satu entered into a heads of agreement (HOA) with SILK Holdings to acquire the entire share capital of Sistem Lingkaran-Lebuhraya Kajang (SILK) for MYR368m. The purchase consideration for the proposed acquisition will be satisfied via MYR239.25m cash and the issuance of 125m shares of 50sen each in WZ Satu at an issue price of MYR1.03 per share. The cash portion of the consideration will be substantially funded directly by the co-investors and the remaining portion will be funded by the company’s internal cash and/or fund raising, which may include a rights issue and/or placement of new shares. (Source: The Sun Daily)