Economy
US: Yellen policy affirmed as long-term jobless find work. Americans who have been hunting for employment for more than six months are finally catching a break. Faced with a shrinking pool of available workers and incipient wage pressures, companies are starting to give the longer-term unemployed a second look. The number of Americans without a job for 27 weeks or more fell to 3.4m in May from 4.4m a year earlier, though some of that drop reflects people leaving the workforce. (Bloomberg)EU: European companies take on pre-crisis levels of debt. European companies that raise finance are taking on levels of debt not seen since the financial crisis as they adjust to the prospect of low interest rates for the foreseeable future. The ratio of debt to company earnings, or “leverage multiples”, for all European transactions were 5.1 times earnings in the first quarter of 2014, above the 10-year average (4.8 times) for the first time since 2008. The ECB’s decision to cut a key interest rate this month has exacerbated a mismatch in supply and demand for yield from investors. It had resulted in ever-tighter pricing for new issuance of loans and bonds, said Standard & Poor’s. (Financial Times)
EU: Most European banks see no extra capital need after ECB review. Most European banks are confident they won’t need to raise capital after the ECB’s balance-sheet review, a study by Ernst & Young LLP showed. While about two-thirds of the banks are optimistic about the economic outlook and their own performance, one in three says it will increase provisions against loan losses in the next six months. (Bloomberg)
China: Beige book shows economy slowing amid weakening investment. China’s economic slowdown deepened this quarter, as capital spending showed weakness and fewer companies applied for credit, a private survey showed. Half of businesses reported higher investment, the smallest proportion and the sharpest drop since the survey began 10 quarters ago, according to the China Beige Book. The slowdown hurt hiring and wages, and interest rates offered by shadow lenders fell below levels offered by banks, it said. (Bloomberg)
Markets
Wah Seong (WSC MK, Outperform, TP: RM2.60): Tendering for RM5bn projects. Wah Seong Corp is tendering for about RM5bn worth of projects this year. Group CEO Chan Cheu Leong told that about RM1.8bn of the jobs were for the pipe-coating business segment. “We expect to secure about 50% of the pipe-coating jobs,” Chan said. He said the group had up to the 1Q of 2014 locked in about RM1.7bn worth of projects, of which some RM800m were for the pipe-coating business, and the balance for its renewable energy (RE) and industrial services segments. On the RE segment, Chan said the group had secured about RM360m worth of projects. (StarBiz)NCB Holdings: Aims big with new RM350m wharf to attract ultralarge vessels. Northport (M), the cash cow of NCB Holdings, is banking on the re-opening of RM350m wharf 8 to attract more main line operators with ultra-large vessels to call at the port on regular basis. These vessels are up to 18,000 twenty-foot equivalent units (TEUs). Ultimately, Northport wants to be in the loop of the ultra-large vessels network. The terminal could accept ultra-large vessels on an ad-hoc basis currently. The big boys of the shipping industry such as Maersk Line and CMA CGM are building bigger vessels to achieve higher economies of scale as a result of the weak shipping rates, which have yet to fully recover from the global financial crisis since late 2008. (StarBiz)
PIE Industrial: Secures orders worth RM500m. PIE Industrial has so far secured orders for industrial electronics products and box-built including satellite set-top boxes with an approximate value of RM500m from its customers in the US, Europe and Japan. Group MD Alvin Mui tells that the amount was more than the RM450m achieved for the whole of last year. “We have to date deliver about 40% of the products to the customers. The remainder will be progressively delivered before the end of the year. We are still getting new orders coming in,” he says. In light of the new orders, the group expects its performance for this year to improve and grow by double-digit percentage over 2013. (StarBiz)
7-Eleven: Introducing new cafe-lifestyle concept, including seating areas. Through its plans to expand network and refurbish some selected stores, 7-Eleven Malaysia Holdings targets to introduce a new concept in 200 outlets in the next three to four years. Among the selling points of the new concept stores are the array of fresh food and beverages as well as seating areas. The new store format, deputy CEO Gary Brown said, was to offer a lifestyle concept similar to a neighbourhood cafe for the convenience store chain. The company has set aside RM80m for 200 new stores and 200 refurbishments this year. (StarBiz)
Apex Healthcare: On stronger footing; expands pharmaceutical, consumer products. Apex Healthcare’s transformation into a healthcare group from a pharmaceutical-based company has put it on a stronger footing in terms of revenue and earnings. Chairman and CEO Dr Kee Kirk Chin says Apex’s objective is to be an important regional player by growing the pharmaceutical, consumer products and orthopaedics business and increasing its exports. “Our main business is from pharmaceuticals, where generic drugs have been growing steadily, and also from the new products,” he said. In the FYE Dec 31, 2013, pharmaceuticals accounted for 80% of group revenue, he says. (StarBiz)
MARKET UPDATE
US equities ended higher as investors’ renewed optimism on the health of the economy sent markets to record-highs again, bolstered by reports of Philadelphia’s factory index unexpectedly climbing in June and unemployment benefit claims coming in lower than expected. Also, there were the comments of Janet Yellen during the week emphasizing the need to put more Americans back to work and downplaying asset-price bubble and inflation concerns which had investors speculating that interest rates would be kept unchanged even beyond the June 2015 expectation for an initial hike. For the day, both the Dow Jones Industrial Average and S&P 500 inched 0.2% higher for respective gains of 1.0% and 1.4% for the week.European equities ended the week on a weaker note amid a preliminary European Commission report showing consumer confidence unexpectedly falling to -7.4 in June from -7.1 in May. Individual stock performances were boosted by merger and acquisition related news however, as companies sought to utilize cash hordes for tax advantages. Benchmarks in Spain, France and Germany slipped 0.3%, 0.5% and 0.2% respectively last Friday while Italy’s FTSE MIB plunged 1.0%. UK’s FTSE 100 rose 0.3% however, led higher by healthcare companies.
While US equities were lifted by Yellen’s dovish comments, Asian markets traded to the contrary as investors pondered on whether actual policy action would eventually commensurate with comments being espoused, leaving most markets ending mixed for the day. While the Hang Seng and Shanghai Composite indices closed 0.1% and 0.2% higher, the Straits Times Index slipped 0.3%. The FBM KLCI was 0.2% higher, led by buying in SapuraKencana Petroleum and MISC.
Wah Seong Corporation, which has come under some selling pressure of late, expects some promising years ahead due to its current order book of RM1.7bn and tenders worth about RM5.0bn. We share the view, and see this current bout of price weakness as a good opportunity to accumulate shares we expect to be worth RM2.60 premised on an 18x multiple to its FY15 earnings per share. Managing Director and CEO Chan Cheu Leong, after the company’s Annual General Meeting (AGM), guided that the tender success rate varies, with a likely 50% for pipe coating and 20%-30% for the engineering and fabrication divisions respectively due to stiff competition. About RM1.8bn of its RM5.0bn tender book is pipe-coating related. On a side note and with the promise of more developments to come, Datuk Raymond Chan (who has been the face of the company in recent times) has been ousted from the board of Harvest Court Industries after a tense 3-hour AGM.
Source: PublicInvest Research - 23 Jun 2014
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