Economy
US: Consumer credit jumps as auto lending strengthens. Consumer borrowing in the US surged again in May as Americans took out more loans to purchase cars. The USD19.6bn increase in credit followed a revised USD26.1bn gain in Apr. Non-revolving lending, which includes auto and school loans, advanced by the most in a year. Stronger employment and stock-market gains this year are giving consumers the confidence to take on more debt. The figures coincide with robust auto sales and greater demand for furniture and appliances tied to the real-estate recovery, indicating the economy is rebounding from a 1Q slump. (Bloomberg)US: Lacker says inflation moving toward Fed's target. Richmond Federal Reserve President Jeffrey Lacker said that US inflation has bottomed out and is moving toward its target, with economic growth continuing at a moderate pace. Lacker said subdued productivity growth, moderate consumer spending and a tempered expansion in housing construction will likely keep US growth at between 2.0% and 2.5% in the near term - below his earlier forecast of something over 3%. (Reuters)
EU: Italy hits resistance to softer European spending rules. Italy and its allies will receive no special leeway in meeting EU budget rules as Germany resisted attempts to soft-pedal on long-promised spending reforms. Italy, leading a drive for greater flexibility in the way the rules are applied to encourage economic growth and investment, has the second-highest public debt in the euro zone as a proportion of national output, after Greece. (Reuters)
Japan: Current account surplus improves in May, outlook dim. Japan's current account logged a higher-than-expected surplus in May as the trade deficit narrowed due to a decline in imports. But the improvement in the current account surplus could be temporary as export growth slowed in May, a sign that firms shifting manufacturing capacity overseas has made it difficult for exports to grow rapidly. The current account data also highlighted the need to stimulate domestic demand and the services sector as exports are no longer enough to drive economic growth. (StarBiz)
Markets
CSL: Bursa puts CSL under PN17. China Stationery Ltd (CSL) has been categorised as a Practice Note 17 (PN17) company by Bursa Malaysia after the firm’s external auditors put a “disclaimer opinion” in its financial statement for the year ended Dec 31, 2013. The Fujianbased Chinese company had earlier said that the reason for the delay in submitting its accounts was due to the fire that destroyed its factory in Apr. Pertaining to the disclaimer opinion, its auditors Messrs RT LLP noted that it was not able to obtain sufficient appropriate audit evidence to provide a basis for an audit opinion. (StarBiz)Pelikan: To spin off stationery business, raise RM491m. Pelikan International Corp has announced plans to float key units and selected assets in Germany via Frankfurt-listed Herlitz Aktiengesellschaft, its 70.9%-owned subsidiary, and a series of corporate exercises to raise RM491.3m. The firm would embark on a streamlining exercise to inject assets within Pelikan and Pelikan Holding AG, its 96.45%-owned unit traded on Switzerland’s SIX Stock Exchange, into Herlitz for EUR266m (RM1.19bn), in exchange for 266m new bearer shares of one euro each in Herlitz. Pelikan also proposed a private placement of up to 50m Herlitz shares at a minimum offer price of one euro apiece, an offer for sale by Pelikan of up to 30m Herlitz shares and an offer for sale by Pelikan Holding of up to 30m Herlitz shares. (StarBiz)
Jag: Plans to seek Main Market transfer. ACE Market-listed Jag, which recently acquired an industrial and electronic waste (E-waste) recycling business, is planning to seek a transfer to the Main Market of Bursa Malaysia. IT firm Jag, formerly known as Infortech Alliance bought over profit-making Jaring Metal Industries SB (JMI) which is involved in the recycling of E-waste, last year. With JMI in its stable, Jag was immediately pushed into the black, recording a net profit of RM1.7m on revenue of RM35.5m for the 4Q ended Dec 31,2013 after bleeding red ink for quarters on end. (StarBiz)
Malton: Defers receipt of RM32m. Malton, through its wholly-owned unit Layar Raya SB, has extended the period of payment for the balance consideration of RM32.1m on its land disposals to Fame Action SB, a wholly-owned subsidiary of Global Oriental. Malton said Layar Raya and Fame Action had mutually agreed to extend the payment period to Sep 9, subject to an interest rate of 8% per annum, to be calculated on a daily basis. Layar Raya had on Dec 9, 2013 entered into a conditional SPA with Fame Action for the disposal of two pieces of freehold land measuring 10.3542ha, located within the Mukim of Cheras in Ulu Langat, for RM35.7m. (Financial Daily)
KYM: Expects 60% sales increase in industrial bag division this year. KYM Holdings expects its industrial bag division to continue steering its future growth in the face of an expected increase in the division’s monthly sales to RM8m by the end of this year, when it reaches full production capacity. That would mean a 60% increase from the RM5m monthly sales it recorded in 2013. The company’s CEO Lee Tze Thean said once KYM’s industrial bag division hits full capacity – which brings it three years ahead of its corporate plans – it is expected to bring in a total sales of between RM7m and RM8m a month. (Financial Daily)
MARKET UPDATE
Are investors finally coming to their senses, realizing that a continuous liquidity-driven surge in markets may well not be fully supported by economic fundamentals and corporate earnings, and which may come crashing down on any untoward developments? That may have seemed to be the case overnight, when major Western benchmark indices closed considerably lower. Both the Dow Jones Industrial Average and S&P 500 declined 0.7%. Alcoa unofficially kicked-off the US earnings season, reporting second-quarter revenue and earnings which beat estimates. Other big names to look out for in the coming week are Citigroup Inc, JPMorgan Chase, Johnson & Johnson and Goldman Sachs.European markets had more evident slumps as profit warnings sparked off fears that further upside in markets on account of earnings enhancements may not necessarily be the case anymore. In this particular instance, the Air France-KLM Group cut its full year forecast citing overcapacity on its North American and Asian routes, poor demand for freight and the fallout from a dispute with Venezuala. Italy and Spain’s benchmarks fell 2.7% and 1.8% while Germany, France and UK’s declined 1.4%, 1.4% and 1.3%.
Asian equities were mostly higher for the day though some levels of similar concern are starting to creep in, in that markets may react adversely (and soon) to any instances contrary to still-accommodative US monetary policy. With only timing in question, consensus expectations are consistent however…. the stock market is going to correct sometime in the next few months. But for yesterday, benchmarks of China, Thailand and Indonesia rose 0.2%, 0.3% and 0.7% while those of Singapore and India slipped 0.3% and 2.0%. The FBM KLCI and Hang Seng Index clocked in insignificant gains of 0.01%.
It was a day of contract awards, with three announced yesterday in varying sizes. TRC Synergy clinched the largest with an RM191m job from the Public Works Department to refurbish and upgrade the Parliament House of Malaysia (Phase 2B). Fajarbaru Builder Group announced the securing of an RM49.1m roadwork contract out east in Pahang from the East Coast Economic Region Development Council while Bina Darulaman also reported the clinching of an RM9.5m roadwork contract up north in Kedah. Moving away from home, Pelikan International Corporation announced that it plans to list key subsidiaries and selected assets via its listed entity Herlitz Aktiengesellschaft through a combination of exercises. The conclusion of the entire exercise will see Pelikan netting an RM118.5m gain, dilute its effective interest in Herlitz from the current 70.92% to 64.02%, raise about RM491.3m which will be used to develop Herlitz’s business (41% of proceeds), working capital for Pelikan and its subsidiaries (26%) and repay bank borrowings (31%). Only now do we probably know why Pelikan’s share price has surged >100% in the recent months. On a completely different note, one wonders what’s in Harvest Court Industries that there would be such a tussle for a loss-making company which has an asset value per share only worth about half its current share price, with the latest development being a requisition from a two significant shareholders to remove four directors.
Source: PublicInvest Research - 9 Jul 2014
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