Malaysia: HSBC's Rosier Economic Forecast

No bumper growth rates and no severe slump too for Malaysia's economy. That is what HSBC Economist Wellian Wiranto has to say about Malaysia, adding that the country has recovered well from the effects of the
economic crisis.

"Exports staged a quick rebound, helped by inventory restocking and the increasing importance of intra-Asian trade," he said in the latest Asian Economics Quarterly last Friday.

Wiranto said private consumption continued to support growth, adding a complementing exports.

HSBC revised its projections, expecting the Malaysian economy to grow by 5.1 per cent in 2011 from 7.1 per cent in 2010 before slowing to a 4.9 per cent growth in 2012.

He said although the unexpectedly low spending in the third quarter of 2010 turned out to be the primary culprit behind the downside surprise, he does not expect the drag to persist for too long.

"Investment activities are moving along quite steadily. However, they are not yet expanding as much as the government would desire."

In terms of investment growth, HSBC has projected it to grow by 8.9 per cent year-on-year in 2010 and 6.5 per cent in 2011.

On the monetary policy front, Bank Negara Malaysia (BNM) stands out as one of the few Asian central banks not only to tighten, but to do so early on during the upcycle.

"The space BNM has created for itself with its normalisation drive should allow the central bank to pause during the first half of 2011, before resuming its normalisation drive," Wiranto said, adding that BNM can focus more readily on risks to growth over the near term.

It expects BNM to hike the Overnight Policy Rate by 25 basis points to 3 per cent in the third quarter and another 25 basis points to 3.25 per cent by the end of the year.

Meanwhile, the bank's Asia Pacific team, led by chief economists Qu Hongbin and Frederic Neumann, says growth in the region in 2011 should hold up nicely, leading them to tweak up the numbers.

"But, it's no longer just about Asian giants. China and India have clearly led the pack. But the real trend to watch is in Asian smaller economies, where the continued boom in trade is having the biggest impact."

The biggest growth upgrades, in fact, have come in Hong Kong, South Korea, Singapore, and the Philippines.

Thailand, for example, has bounced back impressively, while Indonesia will push growth up another notch.

But the impressive run by Asian economies (pumped by low rates and foreign liquidity) have "dire consequences", they warned.

Central bankers need to worry about rising inflation pressures, asset bubbles and excessive investment.

"All three symptoms are beginning to show in Asia. Still, there is sufficient time to delve into a diet of monetary tightening and avoid the pitfalls that have so often plagued this region before."

They said 2011 will be the year when the path is being laid: with growth strong and imbalances still manageable, policymakers had better practise prevention and wean economies off their artificial support.

Asia needs to tighten monetary policy rapidly and if it fails at this, it would need to brace for a harsh landing.

"The global output gap, in short, may help to contain Asian inflation somewhat, even if the region itself may increasingly be responsible for the universal climb in the price of major commodities," they added.

So, do you believe in all these analysis and predictions or are they mere humbug that any Tom, Dick and Harry can also predict?

Malaysia's Top Trading Partners

Here, at a glance, are the top trading partners of Malaysia.

MRCB: Piling on the Plate

When good things come, they usually come in torrents and in deluge for primadonnas such as MRCB. Who says being an GLC affiliate doesn't pay?

Today, MRCB has hit high heaven after the Edge weekly reported that MRCB together with Ekovest is on the verge of receiving a handsome letter of award from the government for a portion of the Klang Valley river cleaning project. The portion may be worth up to RM 8 billion while the total project size is estimated some RM 15 billion.

Projects of such a nature are not new to MRCB. It has a strong niche in environmental and river rehabilitation projects. Some of the projects it has completed are Phase 1 of the Kuala Sg Pahang project worth RM 258 million and the RM 20 million Kg Perai, Penang River project.

This is HwangDBS's take on this development.

Assuming a 50:50 JV with Ekovest is in the works, MRCB’s portion could be worth some RM 4 bllion,though this could be over a longer time period. Judging by pretax margins of similar projects done by MRCB, margins could be in the region of 12 to 15%, way higher and beyond that of construction related jobs state gives a return of of just 5 to 8%.

HwangDBS have taken quite conservative assumptions for new order wins of just RM 600 million per annum for FY11-FY12F leaving room to raise forecasts. A potential wildcard for this project is the development rights for the land surrounding the Klang river which is understand to be substantive.

As such HwangDBS has reiterate a a buy  on MRCB with a TP of RM2.90 pershare.

So,let us see how precise is HwangDBS on the rise and further rise of MRCB's share prices.

Issues in the PLUS Bidding

Presenna Nambiar of the online NST seems to be of the opinion that a likely stalemate awaits for PLUS and its 2 bidders, assuming no other parties is coming into the fray at the 11th hour.

So has concluded that the outcome that may not be entirely bad for UEM Group Bhd and the Employees Provident Fund as they still control the highway company.

Three out of four analysts believe that PLUS Expressways Bhd (5052) will remain status quo, with no new offer from its existing owners in sight and Jelas Ulung Sdn Bhd's bid once again put under scrutiny.

PLUS is expected to make an announcement on the bids it received, after the market closes today (10 January 2011).

It looks likely to only be a bidding duel between the two so far, despite rumours of a new bid by Asas Serba Sdn Bhd and another from Tan Sri Syed Mokhtar AlBukhary-controlled MMC Corp Bhd resurfacing.

UEM-EPF has offered to take over PLUS at RM4.60 per share that works out to RM23 billion, while Jelas Ulung offered RM26 billion or RM5.20 per share.

One analyst from ECM Libra, however, believes that it is still likely for UEM-EPF to come back with a revised offer in the ele-venth hour and therefore have its bid go through.

As at press time, however, no announcements to the effect were made to Bursa Malaysia.

With no revised offer from UEM-EPF and doubts on Jelas Ulung's financing capabilities raised, it looks likely that neither will be voted in by shareholders.

An article in Singapore Business Times, inspired by a blog, questioned Jelas Ulung's ability to gain regulatory approval for the foreign currency financing it needs, on concerns of its capability to service such a debt.

The depreciation of the ringgit appears to be at the crux of the argument, and whether Jelas Ulung would be able to cope with effects it would have on its ability to service the credit.

[To my mind,Jelas Ulung remains the underdog as it is an unknown quantity which could perhaps be antithetical to the government of the day. The UEM-EPF bid ,however, seems  more to be blessed by the government as it is still within the GLC clawhold and EPF, a perfunctory of the government.

So,when the day ends today, my reading is UEM-EPF will win because of more certainties as well as the likelihood of a revised bid.

Let us see.

Maybank : The Missing Thai Puzzle

After Maybank's intended taking over of Kim Eng Holdings Berhad with a huge footprint globally,analysts from Hwang-DBS Vickers Research and RHB Research are thinking that the ferocious tiger mauler bank will soon buy into a Thai bank as it does not yet have a commercial banking presence in the second-largest economy of Southeast Asia.

To the insightful observer,it's the next obvious move for Maybank, but it won't happen so soon. It will probably start looking (for targets) in the next financial year (which starts on July 1 2011)," one of the sources told Business Times.

Just two days ago, Maybank announced plans to buy a leading regional brokerage, Kim Eng Holdings Ltd for RM4.3 billion, a move that will mark its entry into Thailand.Kim Eng is ranked the number one broker there, with 41 branches.

Analysts from HwangDBS Vickers Research and RHB Research think it will not be too long before Maybank makes its move.

"With the acquisition of Kim Eng, Maybank has filled its business gaps in investment banking and equities in (Southeast Asian markets). What Maybank lacks now is a commercial bank in Thailand.

"We would expect Maybank to explore a possible expansion in Thailand, so there could be another merger and acquisition (M&A) in the near future," HwangDBS' Lim Sue Lin said in a report yesterday, following an analyst briefing by Maybank's management late Thursday.

Having a commercial bank in Thailand would complete its regional presence. It already has a commercial banking presence in key Southeast Asian markets like Indonesia, Vietnam, Singapore, the Philippines and Cambodia.

"Management did not rule out the possibility of an acquisition of a commercial bank there further down the road, but said that for now, further M&A (merger and acquisition) activity was not on the cards (at least over the next 12 months)," RHB Research analyst David Chong said in a report yesterday.

It would make more sense for Maybank to do an acquisition rather than go in on its own as the market is very localised, analysts said.

Its closest rival CIMB Group Holdings Bhd bought into Bank Thai, giving it a commercial banking presence there as early as 2008. RHB Capital Bhd, meanwhile, has had a bank branch in Thailand since 1964.

Maybank president and chief executive officer Datuk Seri Abdul Wahid Omar told reporters that having Kim Eng there would give the lender "deep insight" into that market.

Thailand, despite occasional political unrest, is still a growth economy. Its government expects economic growth to slow to 4.5 per cent this year after estimated 7.8 per cent growth last year.

Maybank took a break from M&As after an acquisition spree in 2008, when it forked out a total RM12.5 billion to buy Bank Internasional Indonesia, MCB Bank (Pakistan) and An Binh Bank (Thailand).

The Kim Eng purchase marks it comeback.

Maybank's shares, which were suspended on Thursday for it to announce the deal, rose at the start of trade yesterday to reach a high of RM9.24 before closing lower at RM9.00, 0.1 per cent lower than before.

The Singapore-listed Kim Eng, meanwhile, jumped 13 per cent to close at a record high of S$3.04 (RM7.2).
Maybank's cash offer for the broker's shares was S$3.10 (RM7.3) each, which most analysts said was fair given its strong regional platform.

Analysts gave the thumbs-up to the deal and maintained their stock recommendations, most of which were positive.

They said the purchase is not expected to hurt the bank's future dividend payouts as its dividend reinvestment plan helps keep cash reserves healthy.

"We like the deal as it will accelerate Maybank's regional growth prospects in brokerage and investment advisory," HwangDBS' Lim said.

She expects Maybank's net profit to increase by 0.7 per cent assuming it funds the purchase entirely by Singapore-dollar debt.

[Looks like Maybank has turned into a phoenix once more. so buy on weakness if any.

To me, a good price to collect Maybank  is below RM8.50.]

MRCB- A Rosy Technical Appraisal

KM Lee takes a look at Malaysian Resources Corporation Berhad (MRCB) in the online STAR today.

For those who see potential heightened activities and price rise  in this counter after the aborted IJM Land exercise, this could come true. After all, in Malaysia; politics is King!

MRCB pulled back from a 33-month peak of RM2.28 on Nov 10, 2010 to the 100-day simple moving average (SMA) of RM1.88 in early December amid correction owing to an apparent profit-taking activity following a wave of strong rally. [Possibly after it was given a poorer valuation compared to IJM Land.]

Thereafter, shares recovered slightly to trade within a moderate range on consolidation and they re-tested the ascending 100-day SMA line once again at the start of the year before bounding off in the wake of fresh buying momentum, driving them to a high of RM2.26 during intra-day session yesterday.

Based on the daily bar chart, it looks like MRCB is making a fresh attempt to resume a rally after a round of correction and consolidation process. Going forward, a convincing breakthrough of the formidable overhead hurdle of RM2.28-RM2.30 band is likely to fuel greater optimism about the trend ahead, thus giving investors the courage to move in aggressively.

Turning to the indicators, the oscillator per cent K and the oscillator per cent D of the daily slow-stochastic momentum index were steady, ending at the 90% and 80% levels respectively yesterday. It flashed a short-term buy on Monday at the neutral zone.

Also on the rise, the 14-day relative strength index improved significantly from a reading of 37 on Monday to close at 79 points yesterday.

Elsewhere, the daily moving average convergence/divergence histogram expanded sharply and positively against the daily signal line to stay bullish. It issues a buy in mid-week signal.

Technically, indicators remain constructive and with trading volumes building up, they suggest an uptrend continuation may come about soon, targeting the RM3 psychological barrier. The next objective is envisaged at the RM3.50 level, followed by the RM4 mark.

Current support is expected at RM2.17 and the next lower floor is pegged at RM2.10. - By K.M. Lee.

In my opinion,if the current uptrend continues, we may likely see RM3.00 for MRCB by CNY.

JohorCorp's Potential Fire Sale

All excess is unacceptable including corporate gluttony! Johor Corp is now paying its overdue tuition fees,so to say.

Yvonne Tan of the online STAR tells a story of an impending fire-sale at JohorCorp.

Vision: To maintain a good corporate image.

Mission: To stay out of an ensuing gargantuan debt.

Yvonne reports:

"Johor Corp (JCorp) is considering selling various assets including some landbank, properties and plantation assets to partly repay its current RM3.6bil debt which is due for repayment in July next year.

The state investment arm first plans to bring down the debt level of RM3.6bil to a “sustainable level” of between RM1bil and RM1.5bil following a debt restructuring exercise, its newly appointed president and chief executive Kamaruzzaman Abu Kassim said.

That would mean that it needs to raise at least RM2.1bil by 2012.

“About 70% (source of funding) for the RM2.1bil needed has already been identified and this includes selling some of our assets,” he said.

The group has “saleable assets” of RM2.1bil, Kamaruzzaman said, without elaborating.

JCorp's landbank and properties are largely in Johor and this includes up to RM2.5bil in commercial properties.

At at March last year, it had about 2,000ha to be developed in the Iskandar Malaysia region.

It also has major plantation and palm oil businesses in Papua New Guinea.

Kamaruzzaman said the group's remaining debt would be restructured via new loans or instruments.

JCorp has appointed CIMB Bank and Maybank Investment Bhd as advisors for the restructuring.

Both banks are also the biggest lenders to JCorp which could probably mean that both banks own the bulk of the bonds due for maturity. [Any default will make CIMB and Maybank the new owners! So tread very carefully,JohorCorp!]

According to JCorp's 2009 annual report, it has RM705mil in cash but a whopping RM6.62bil in debt and with hardly any free cash flow.

The RM3.6bil debt was due to JCorp's investment projects since 2000, “mainly in landed property and industrial areas”, it has been reported.

JCorp has been in the news in recent weeks after it rejected two bids for the takeover of its QSR Brands Bhd. One was by a company linked to tycoon Tan Sri Halim Saad and another by the Carlyle Group.

JCorp is the ultimate shareholder of the lucrative fast-food businesses of QSR and KFC Holdings (M) Bhd.

Its interests in both companies are held through its 53%-owned subsidiary Kulim (M) Bhd, which main business is in the plantation sector.

Kulim owns a 57.5% stake in QSR, which in turn, owns a 50.6% stake in KFC.

As one of the country's largest state economic development authorities, JCorp has about 250 companies under its stable from which it currently derives RM90mil in annual dividend income, Kamaruzzaman revealed.

Kamaruzzaman said yesterday there was a possibility some of these might be listed in the future. “But the proceeds will not be to repay our current debt due for maturity,” he said.

JCorp's other key assets apart from those in the recent limelight include private healthcare service provider KPJ Healthcare Bhd, property development companies Johor Land Bhd and Damansara Realty Bhd, intrapreneur venture business Sindora Bhd and the London-listed plantation company, New Britain Palm Oil Ltd (NBPO). (Kulim owns about 50% of NBPO).

NBPO is one of the world's largest producers of sustainable palm oil.

Tightrope walking is no fun. Ask any circus trapeze artiste. So, it is no easy feat, my friend.

Be wise and stop biting more than you can chew. Otherwise get ready for the corporate reflux and its consequences!