Investment Research

HIGHLIGHTS

On The Global Front
· U.S. February trade deficit falls to lowest level in nine years
· Industrial production in Germany falls for sixth straight month
· Bank of England to continue buying government bonds to fight recession
· U.K. March producer prices increase at slowest pace in 20 months, eroding inflation pressures
· Japanese machinery orders unexpectedly rise in February, adding to signs that recession could be easing

On Malaysia
· Air Asia optimistic passenger growth will be intact this year
· Government has awarded RM1.39bn worth of contracts from 2nd Stimulus Package
· IPI for February falls 14.9% y-o-y

REPORTS
· Wah Seong Corp – Business as usual (Hold; RM1.45; TP: RM1.55)

Stocks rallied Thursday, ending a holiday-shortened week on a high note after Wells Fargo forecast a nearly $3 billion quarterly profit, adding to hopes that the banking sector is stabilizing. It was the fifth straight week of gains for the markets. In that time the Dow rose 22%, for its best five-week run since May of 1933, when it gained 31%. The Dow Jones industrial average gained 3.1% (+246.3 pts, close 8,083.4). The Standard & Poor’s 500 index gained 3.8% (+31.4 pts, close 856.6) and the Nasdaq composite gained 3.9% (+61.9 pts, close 1,652.5). In currency trading, the dollar gained versus the euro and the yen. U.S. light crude oil for May delivery rose to US$2.86 to settle at US$52.24 a barrel on the New York Mercantile Exchange. (CNNmoney)
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The U.S. trade deficit tumbled in February to the lowest level in nine years as collapsing demand from consumers and companies reverberated around the globe. The gap narrowed to US$26bn, less than anticipated, from a revised US$36.2bn in January, the Commerce Department said yesterday. Imports plunged for a seventh consecutive month, leading to declines in the deficits with Japan and China, while exports climbed from a two-year low. The shrinking deficit is another piece of evidence that the U.S. economic slide eased in 1Q09. Imports fell 5.1% to US$152.7bn, the lowest since September 2004. U.S. exports climbed 1.6% to US$126.8bn as sales of pharmaceutical supplies, autos and telecommunications equipment improved. (Bloomberg)
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The number of Americans filing first-time claims for unemployment insurance exceeded 600,000 for a 10th straight week and the total collecting benefits increased to a record, signs that the labour market remains weak. First-time jobless claims fell by 20,000 to 654,000 in the week ended April 4, from a revised 674,000 a week earlier that was the highest since 1982, the Labour Department said yesterday. The number of people staying on benefit rolls rose to a record 5.84m in the prior week. The U.S. lost 663,000 jobs last month, the Labour Department said April 3, and the unemployment rate jumped to 8.5%, the highest level since 1983. (Bloomberg)
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U.S. consumer spending will falter after a first-quarter spurt and recover only gradually toward the end of the year, a monthly Bloomberg News survey showed. Purchases will drop at a 0.5% pace from April to June and grow at an average 0.9% the next six months, according to the median of 51 projections in a survey taken from March 30 to April 8. The estimated 0.5% first- quarter gain would break the longest slide since 1991. Soaring unemployment and tattered household finances are forcing Americans to pay off debt and save more, preventing the economy from gaining traction. What’s shaping up to be the worst global recession in the post-war era means companies are also cutting back and foreigners are buying fewer U.S.-made goods. Unemployment will end the year at 9.5%, a percentage point more than last month’s 25-year high of 8.5%, according to the survey median. Subdued spending will constrain the economy for much of the year. (Bloomberg)
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Industrial production in Germany, Europe’s largest economy, dropped for a sixth month in February as the global recession sapped demand for goods at home and abroad. Output fell a seasonally adjusted 2.9% from January, when it slumped 6.1%, the most since data for a reunified Germany began in 1991, the Economy Ministry in Berlin said yesterday. Economists expected a decline of 3%, the median of 30 forecasts in a Bloomberg survey showed. From a year earlier, output collapsed 20.6%. Manufacturing orders plunged 38% y-o-y in February, exports dropped for a fifth month, and German business confidence fell to the lowest level in more than 26 years in March. The economy may shrink as much as 5.3% this year before a “slow” recovery in 2010, according to the Organization for Economic Cooperation and Development. (Bloomberg)
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The Bank of England left the benchmark interest rate unchanged and said it will keep buying government bonds to fight the deepest recession in a generation. The nine-member Monetary Policy Committee, led by Governor Mervyn King, kept the main rate at 0.5%, the lowest since the bank was founded in 1694, as predicted by 60 of 62 economists in a Bloomberg News survey. The panel also agreed to continue the three-month program to purchase 75bn pounds (US$110bn) of assets to bolster the economy, the bank said. The U.K. economy is shrinking at the fastest pace since 1980, threatening to push inflation below the Bank of England’s 2% target and eventually stoke deflation. While Chief Economist Spencer Dale says growth may return at the end of the year, investors have called on King to keep up the pace of bond purchases to push down yields and ease credit markets. (Bloomberg)
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U.K. producer prices increased in March at the slowest annual pace in 20 months as the recession persisted and raw material costs dropped, eroding inflation pressures in the economy. The cost of goods at factory gates rose 2% y-o-y, the Office for National Statistics said yesterday. The result was lower than the 2.1% median prediction of 25 economists in a Bloomberg News survey. On the month, producer prices increased 0.1%. U.K. manufacturing dropped the most in at least four decades in the quarter through February and unemployment rose as the recession showed little sign of abating. Bank of England Governor Mervyn King said last month that a “sharp decline” in the inflation rate will resume as the economic slump drains consumer-price pressures. Producer prices dropped on the year because a decline in gasoline-product costs offset gains in all other categories, the statistics office said. On the month, prices of electrical and optical and other products also fell. (Bloomberg)
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Japanese machinery orders unexpectedly rose for the first time in five months in February, adding to signs that the recession may be easing. Bookings, an indicator of capital investment in the next three to six months, climbed 1.4% from January, the Cabinet Office said yesterday. The median estimate of 28 economists surveyed by Bloomberg was for a 6.9% drop. Recent reports show companies plan to increase output after draining inventories, merchant sentiment climbed to an eight-month high in March, and manufacturers expect to be less pessimistic next quarter. The increase in machinery orders “could be a temporary rebound from the rapid worsening in the past six months and it’s difficult to say Japan’s economy is heading for a sustainable recovery,” said Soichi Okuda, chief economist at Sumitomo Research Institute in Tokyo. “The private sector is still reluctant to invest as their cash flow remains severe.” Bank of Japan Governor Masaaki Shirakawa said in parliament yesterday that the economy is likely to keep worsening and uncertainty remains high. (Bloomberg)
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The Bank of Korea’s most aggressive round of interest rate cuts in a decade may be coming to an end. Governor Lee Seong Tae and his fellow policy makers kept the benchmark rate unchanged yesterday for a second month, saying there are signs the economy’s deepest contraction in more than a decade may be abating. Factory output gained for a second month in February and manufacturer confidence rose to a five-month high. The government on March 24 unveiled plans to spend 17.7trn won (US$13bn) on cash handouts, cheap loans and job training to revive an economy that contracted in 4Q08 by the most since 1998. “Although domestic economic activity has not yet been able to pull out of its downturn, some indicators point to the moderation of the abrupt slowdown,” the central bank said. “There are signs that production activity in the manufacturing and services sectors is improving slightly.” (Bloomberg)
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Oil prices climbed Wednesday as new government data showed bulging crude inventories rising less than what analysts were expecting. For the week ended Friday crude supplies increased by 1.7m barrels, or 0.5%, to 361.1m barrels, 15.2% above year-ago levels, the Energy Department’s Energy Information Administration said in its weekly report. (EnergyCurrent)
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AirAsia (AIRA MK, Buy, TP: RM1.90) is optimistic that its passenger growth will be intact this year, despite the global recession significantly impacting the aviation industry. The Group is confident that their expanding route network and competitive fares would induce growth. They also said that 1Q has been good with some 21% increase in passenger numbers. (Financial Daily)
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CIMB Bank, a unit of Bumiputra Commerce Holdings Bhd (BCHB MK, Buy, TP: 7.70) is projecting RM300m deposits by end of the year from a new savings account product launched yesterday. The bank has partnered budget carrier AirAsia Bhd and Tune Money Sdn Bhd to introduce an online savings account that offers travel benefits to account holders, among others. (BT)
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CIMB Bank Bhd will proceed with plans to close about 60 branches as part of its rationalisation plan but it will not involve any retrenchment, said chief executive Datuk Seri Nazir Razak. The bank was embarking on its 3rd branch rationalisation plan, which was consistent with what it had planned since merging with Southern Bank in 2006. Employees at the affected branches would be redeployed. CIMB currently owns over 360 branches nationwide and plans to see the number of branches cut to the “optimal size” of 320. (StarBiz)
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Telekom Malaysia (T MK, Hold, TP: 2.74) yesterday signed the project agreement with the government on the implementation of the unified emergency contact number system, MERS 999, for a total of RM334.05mn. The project will be implemented in 4 phases, over a period of 3 years and 2 months, from 1 May 2007 to 30 June 2010. TM would develop, supply, deliver, install, test, commission, operate and maintain the MERS 999 system. (Financial Daily)
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Sime Darby Bhd (SIME MK, Buy, TP: RM6.40) has set up two new property development companies in China, namely Weifang Sime Darby Property Co Ltd and Weifang Sime Darby Real Estate Co Ltd. The registered capital of each is US$29.98m. (Bursa)
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Proton Holdings Bhd’s top executive is calling for the national car industry to consolidate now to prepare for the challenges once the global economy recovers. Managing director Datuk Syed Zainal Abidin Syed Mohamed Tahir said the diverse structure of the industry, with production centres and vendors strewn throughout the country, had led to inefficiencies and higher costs. That, coupled with excess production capacity, makes it tough for the country to compete effectively against global players that are already undergoing consolidation and cost cutting during these tough times. (StarBiz)
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A JV agreement involving Malaysia’s Aidid Petro Corporation (APC) has been signed to form a state-owned company to manage the development of Aceh’s oil & gas resources. The three-party agreement was signed between the provincial government of Aceh, management board of Sabang Free Trade Zone, and APC. APC is a company with management and engineering expertise in the development of oil & gas facilities. (Financial Daily)
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The Government has to date awarded contractors RM1.39bn worth of projects planned under the 2nd economic stimulus package, according to the newly launched website, www.rangsanganekonomi.treasury.gov.my. Of the RM60bn package tabled in Parliament on March 10, only RM15bn was actual extra fiscal spending by the Government. Of that amount, the Education Ministry was allocated RM2.09bn, the largest chunk. Meanwhile, a total of RM5.59bn of the RM7bn allocated under the 1st stimulus package announced on November 4 last year has been disbursed as at April 2. All 38,000 projects under the 1st stimulus package will be rolled out by the end of this month. (StarBiz)
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Crude palm oil (CPO) prices surged past RM2200, a level not seen since last September, on a rally in crude oil and soybean oil as well as market anticipation that Malaysia’s palm oil inventories could drop further. Government and MPOB officials estimated that palm oil inventories for March could fall further to 1.5m mt. (Financial Daily)
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CPO will likely trade at the RM2,400 per tonne level by the end of the year if the world’s top crude oil producer, Saudi Arabia, can support prices at US$55 per barrel, a top industry expert said. However, CPO price could also fall to the critical level of RM1,500 per tonne if Saudi Arabia failed to stop crude oil prices from falling to US$35 per barrel, said James Fry, a London based international oils and fats expert and the managing director of LMC International Ltd. He also said that Malaysia’s palm oil stocks could fall below 1.7m tonnes by October, if the Government’s B5 biodiesel programme succeeded in reducing palm oil stockpiles. (StarBiz)
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The Industrial Production Index (IPI) for February declined 14.7% y-o-y, following a 19.8% y-0-y decline in January 2009. The drop in February was due to decreases in the manufacturing (18.8%), mining (7.3%) and electricity (3%) indices, the Statistics Department said. The IPI was down 3.7% m-o-m. The cumulative index for the first 2 months of 2009 was down 17.4% y-o-y. (StarBiz)
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Prime Minister Datuk Seri Mohd Najib Razak yesterday named his new cabinet line-up consisting of 28 ministers and 40 deputy ministers yesterday. He held on to the finance portfolio while Tan Sri Muhyiddin Yassin was named deputy prime
minister and given the education portfolio. (Malaysian Reserve)
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