Saturday, September 3, 2011

Global economy in "danger zone"-World Bank boss

BEIJING: The world economy is stepping into a "new danger zone," World Bank President Robert Zoellick said on Saturday, Sept 3, as growth slows and investor confidence weakens.

Speaking in Beijing, Zoellick urged Europe and the United States to tackle their debt problems, and noted that near record-high food prices and volatile commodity markets are threatening the most world's vulnerable people.

"The financial crisis in Europe has become a sovereign debt crisis, with serious implications for the Monetary Union, banks, and competitiveness of some countries," he said.

"My country, the United States, must address the issues of debt, spending, tax reform to boost private sector growth, and a stalled trade policy."

Turning to China, where he is leading a World Bank study on how the nation can improve its economic growth model, Zoellick was upbeat.

China is "well positioned" to become a "high-income" nation in the next 15 to 20 years, from its status as an "upper-middle income" country now, he said.

The question is whether China can avoid the "middle income trap", where national productivity and income growth stalls after per capita income hits $3,000 to $6,000, Zoellick said.

"If China were to continue on its current growth path, by 2030 it would have an economy equivalent to 15 of today's South Koreas, using market prices," he said.

"It's hard to see how that expansion could be accommodated with an export and investment-led growth model."

Although China is the world's second-largest economy, its per capita gross national income stands at just $4,260, World Bank data showed, less than a tenth of the $47,140 seen in the United States.

Critics have long said China relies too much on heavy investment and exports to drive its economy, and should encourage domestic consumption.

For Chinese consumption to take off, analysts say China needs to cut income taxes, improve healthcare services and labour mobility, and reduce Beijing's share of national income by raising dividend payouts from state firms, among other measures. - Reuters

#Stocks to watch:* Sime, MEGB, AirAsia, Salcon, plantations

KUALA LUMPUR: After the rally on Bursa Malaysia on Friday, Sept 2, the rebound could be short-lived in the week ahead following the 2% overnight fall on Wall Street on prospects of another recession.

World Bank President Robert Zoellick warned on Saturday the world economy was stepping into a "new danger zone"'' as growth slows and investor confidence weakens.

Zoellick urged Europe and the United States to tackle their debt problems, and noted that near record-high food prices and volatile commodity markets are threatening the most world's vulnerable people.

"The financial crisis in Europe has become a sovereign debt crisis, with serious implications for the Monetary Union, banks, and competitiveness of some countries," he said in Beijing.

Reuters reported that US jobs data showed zero jobs growth in August and brought investors face-to-face with the prospect of another recession.

The declines left Wall Street lower for the sixth week out of seven as declining issues far outweighed winners on a light-volume day ahead of the long U.S. Labor Day holiday weekend.

The Dow Jones industrial average was down 253.16 points, or 2.20%, at 11,240.41. The Standard & Poor's 500 Index was down 30.46 points, or 2.53%, at 1,173.96. The Nasdaq Composite Index was down 65.71 points, or 2.58%, at 2,480.33. Friday marked the S&P's biggest drop in two weeks.

Meanwhile, Hwang DBS Vickers Research (HDBSVR) said with the earnings reduced for the stocks under its coverage, its year-end FBM KLCI target was lowered to 1,520 (14 times 2012 earnings) from 1,730.

'With the slowdown in economic growth, there could be risk to our earnings projections. In the 2008-09 financial crisis, our 2009 earnings were cut by 18%.

'At that time, the impact on earnings was compounded by a collapse in CPO and oil prices. Without these factors, the extent of earnings risk should be less than 2008. More resilient sectors are telcos, gaming and PLANTATION [],' it said.

HDBSVR said it continued to like names with strong domestic drivers and reasonable valuations such as BOUSTEAD HOLDINGS BHD [] (8.0 times forward earnings, 7% yield), DRB-Hicom (7.0 times earnings, 0.8 times book).

'Alliance Financial Group (AFG) is the cheapest banking stock in our universe,' it said, pointing out that AFG's scalable domestic franchise and non-interest income traction would support earnings growth and returns on equity expansion.

Among the stocks which could see trading interest on Monday are SIME DARBY BHD [] following its proposed acquisition of a 30% stake in Eastern and Oriental Bhd (E&O) which was reported to be 60% above market prices.

Also in focus would be Masterskill Education Group Bhd (MEGB), AIRASIA BHD [], SALCON BHD [] and plantations.

MEGB shares tumbled on Friday, closing 14 sen ot 10.6% to RM1.18 after it posted lower earnings of RM11.6 million for the quarter ended June 30 compared with RM22.40 million a year ago.

AirAsia saw the Employees Provident Fund (EPF) Board continued to raise its stake in the low-cost carrier, with the latest acquisitions involving nearly 10 million shares. The EPF bought 4.277 million shares on Aug 25 and 5.720 million shares the next day.

The latest acquisitions saw the EPF increasing its shareholding to 346.047 million shares or 12.47%.

Salcon secured a RM20.4 million sub-contract from Octagon Engineering (M) Sdn Bhd to upgrade and repair the Sg Chukai in Terengganu under the Chukai and Kemanan flood mitigation project.

The contract was for 18 months from September 2011 to February 2013. Salcon expected the project to contribute positively to its earnings or the financial year ending Dec 31, 2012.

Plantations could see extended trading interest on firmer crude palm oil prices but investors should expected profit-taking after the strong gains on Friday.

Meanwhile The Edge weekly reported the recent reverse takeover of R and A Telecommunication Group Bhd by KZEN SOLUTIONS BHD [] has prompted one of its peers to follow suit.

This time around, the reverse takeover involves the injection of Instacom Holdings Bhd, a turnkey design and engineering solutions provider for telecommunications networks, into ACE Market-listed I-POWER BHD [].

Jobs woes sink Wall Street

NEW YORK: Stocks tumbled 2 percent on Friday, Sept 2 after data showing zero jobs growth in August brought investors face-to-face with the prospect of another recession.

The declines left Wall Street lower for the sixth week out of seven as declining issues far outweighed winners on a light-volume day ahead of the long U.S. Labor Day holiday weekend.

Stocks had rebounded recently on expectations the Federal Reserve would introduce new stimulus to boost the sluggish economy. But the Labor Department's latest report underscores that action by the Fed alone cannot address the economy's deep problems.

"By itself the Fed can't restore confidence or create jobs, so any steps it might take won't be game-changing for the economic growth prospects," said Leo Grohowski, chief investment officer at BNY Mellon Wealth Management in New York, where he oversees about $171 billion in client assets.

Bank shares were again among the day's biggest losers, with Bank of America Corp tumbling 8.3 percent to $7.25, making it the top decliner on the Dow, where all 30 components fell. JPMorgan Chase & Co fell 4.6 percent to $34.63 and the KBW banks index lost 4.5 percent.

A U.S. housing regulator filed a lawsuit against Bank of America Corp, JPMorgan Chase & Co, Goldman Sachs Group Inc and other big lenders over mortgage practices that led to losses at government-owned Fannie Mae and Freddie Mac.

There was no growth in nonfarm jobs in August as sagging consumer confidence discouraged already skittish businesses from hiring, keeping pressure on the Federal Reserve to provide more monetary stimulus to the economy.

U.S. President Barack Obama, in a speech set for Thursday, will unveil a jobs program he hopes will provide "meaningful" tax relief and help the nation's long-term unemployed, a top aide told Reuters Insider.

"The likelihood of more stimulus has increased dramatically as a result of this and some other recent data, but at this point it's unclear how much that will really help markets," said Derek Hoyt, chief investment officer at KDV Wealth Management in Minneapolis, Minnesota.

The Dow Jones industrial average was down 253.16 points, or 2.20 percent, at 11,240.41. The Standard & Poor's 500 Index was down 30.46 points, or 2.53 percent, at 1,173.96. The Nasdaq Composite Index was down 65.71 points, or 2.58 percent, at 2,480.33.

Friday marked the S&P's biggest drop in two weeks.

Despite the day's sharp decline, stocks were only modestly lower for the week, after a rally in the first three day of trading. For the week, the Dow fell 0.4 percent, the S&P lost 0.2 percent, and the Nasdaq was flat.

Losing stocks outnumbered winners by more than six-to-one on both the New York Stock Exchange and Nasdaq. The CBOE Volatility index, a gauge of investor fear, rose 5.9 percent.

Volume was light ahead of the holiday, with about 6.88 billion shares traded on the New York Stock Exchange, the American Stock Exchange and Nasdaq, below last year's daily average of 8.47 billion.

Netflix Inc weighed on the Nasdaq, falling 8.6 percent to $213.11 after the collapse of its content distribution talks with pay-TV operator Starz Entertainment.

Energy shares dropped as U.S. crude futures fell 2.5 percent on concerns economic weakness could curb fuel demand. Chevron Corp dipped 2.1 percent to $96.41, while the PHLX Oil service sector index declined 3.3 percent.

As investors sought safer assets, gold prices climbed 3 percent. Newmont Mining was the S&P's top gainer, rising 3.2 percent to $64.47. - Reuters

U.S. regulator sues major banks over subprime bonds

WASHINGTON/NEW YORK: A U.S. regulator sued more than a dozen major banks on Friday, Sept 2 over losses on nearly $200 billion of subprime bonds, which may hamper a broader government settlement of the mortgage mess left over from the housing crisis.

The lawsuits by the Federal Housing Finance Agency, which oversees Fannie Mae and Freddie Mac, came as a surprise to the market and weighed down bank shares.

The lawsuits could add billions of dollars to the banks' potential costs at perhaps the worst possible time for the industry. The litigation reflects how different parties, including investors, banks and different government groups are fighting over who should bear the losses from the housing crisis that tripped the economy into the worst recession in decades in 2008.

The FHFA accused major banks, including Bank of America Corp, its Countrywide and Merrill Lynch units, Barclays Plc, Citigroup Inc and Nomura Holdings Inc of misrepresenting the checks they had done on mortgages before bundling them into mortgages. For a FACTBOX on the banks the FHFA sued, please double click here:

The banks also bundled loans into bonds that should have never been sold to investors, because the mortgages did not meet the investors' stated criteria, the lawsuits said.

Most of the banks and finance companies that were sued refused to comment or were not immediately able to comment, but some called the charges unfounded.

"Fannie Mae and Freddie Mac are the epitome of a sophisticated investor, having issued trillions of dollars of mortgage-backed securities and purchased hundreds of billions of dollars more," said Mayura Hooper, a spokeswoman for Deutsche Bank AG in a an emailed statement.

The biggest banks are already negotiating with the attorneys general of all 50 states to address mortgage abuses. They are looking for a comprehensive settlement that will protect them from future litigation and limit their potential mortgage litigation losses.

"This new litigation could disrupt the AG settlement," said Anthony Sanders, finance professor at George Mason University and a former mortgage bond strategist.

Banks may be more reluctant to agree to a settlement if they know litigation from other government players could still wallop their capital, he said.

Before the FHFA lawsuits had even hit a court docket, financial experts offered blunt expectations for the outcome.

"The lawsuits will be settled. The end result will be a further outflow of cash from the banks and more importantly an additional black eye," said Sean Egan, managing director of Egan-Jones Ratings Co.

FHFA director Edward DeMarco is looking to minimize future losses for Fannie Mae and Freddie Mac, which are owned by the government after failing in September 2008. The FHFA filed the suits before a three year statute of limitations expired. Fannie Mae and Freddie Mac are pillars of U.S. mortgage finance.

The KBW Bank Index closed down 4.5 percent on Friday, nearly doubling the losses of the broader market. Bank of America led the index lower, dropping 8.3 percent.


Bank shares also came under pressure from signs the Federal Reserve could start selling shorter-term debt on its books and buying long-dated bonds to push longer-term yields lower as a stimulus measure.

Such a move, known as "operation twist," would hurt banks whose profit margin is tied to the short-term rates at which they fund and the longer-term rates at which they invest.

Major banks already face potential payouts of tens of billions of dollars to settle regulatory charges of abusive mortgage lending and foreclosure practices, and other investor lawsuits over mortgage debt losses.

Such payouts would reduce earnings and weaken capital levels, perhaps harming the ability of banks to lend money and provide much-needed life to a stalled housing market and weakened economy.

Banks have been walloped by mortgage losses, but so have Fannie Mae and Freddie Mac, which failed after trying to finance too many bad mortgages with too little equity. The two entities guarantee bonds backed by mortgages.

The question of whether to take action for problems related to the mortgage bonds has been under discussion since Fannie Mae and Freddie Mac were placed in conservatorship in 2008, a person familiar with the matter said.

While the ultimate amount FHFA will seek is still unclear, that person said it could top the $20 billion being discussed by the banks and the state attorneys general.


The blizzard of litigation against banks is hurting share prices in the sector because investors feel unable to estimate the ultimate scope of a given bank's legal liabilities.

Bank of America, for example, had intended its proposed $8.5 billion settlement in June with investors in Countrywide mortgage securities to resolve most litigation tied to its disastrous 2008 takeover of that home loan provider.

But many parties are objecting to that settlement and the deal did not stop insurer American International Group Inc from suing Bank of America for $10 billion over its own alleged mortgage securities losses.

Nor did it stop Nevada's attorney general from threatening to withdraw from an $8.4 billion nationwide settlement with the bank. The AG now wants to sue the bank, accusing it of reneging on promises to modify mortgages.

Other banks also face mortgage lawsuits. In May, the U.S. Justice Department sued Deutsche Bank, accusing it of misleading a U.S. housing agency into believing loans it made qualified for federal insurance.

The FHFA's lawsuits follow an initial lawsuit in July against UBS AG seeking to recover $900 million of losses incurred on $4.5 billion of debt.

One legislator praised the expected FHFA lawsuits.

Brad Miller, a Democratic congressman from North Carolina, said: "Not pursuing those claims would be an indirect subsidy for an industry that has gotten too many subsidies already."

FHFA and various investors have alleged banks, while packaging residential home loans into securities sold to investors, failed to conduct adequate due diligence and hid or misstated the quality of the underlying loans and underwriting as well as borrowers' ability to make payments.

A Bank of America spokesman said Fannie Mae and Freddie Mac acknowledged their losses were due to the downturn in the housing market and other economic factors, and they claimed to understand the risk in the securities, but are now trying to hold other parties responsible for their losses.

As more borrowers fell behind or went into foreclosure, the value of securities backed by their loans fell, causing losses for investors.

Losses stemming from the precipitous deterioration in subprime and other mortgages pushed the government to take over Fannie Mae and Freddie Mac on Sept. 7, 2008. Since then, taxpayers have spent more than $140 billion to keep the firms afloat. - Reuters

Market expects Operation Twist in September

NEW YORK: U.S. government bond investors see Federal Reserve action to boost the flagging economy as practically a done deal after the dismal jobs report on Friday, Sept 2.

Market participants now think the Fed will likely announce a plan to sell short-dated Treasury debt and use the proceeds to buy long bonds after its meeting later this month.

Government data showing the U.S. economy failed to create new jobs last month made the Fed's move, about which there had been much speculation over the past two weeks, seem all but inevitable.

Known to some in financial markets as "Operation Twist," the plan's goal would be to flatten the yield curve, lower long-term interest rates and stimulate the economy.

The Treasury market appeared to price in greater likelihood of this after the jobs report, with U.S. 30-year bonds surging 3 points in price.

"Following today's worse-than-expected jobs report, we now look for the Federal Open Market Committee to announce a lengthening of the average maturity of the Fed's balance sheet at the September 20-21 meeting," Jan Hatzius, chief U.S. economist at Goldman Sachs in New York, wrote in a note to clients.

Some analysts said even without the dismal jobs data the Fed's move would have been inevitable.

"We thought they were going to do it in August," said Ira Jersey, interest-rate strategist at Credit Suisse in New York." "But I guess with some of the operational issues it raises they wanted to wait."


Operation Twist would take some fancy footwork, Jersey said, with the New York Fed likely having to hold two auctions in a single day.

The Fed would first sell shorter-dated securities and would then hold a second auction to buy bonds of longer maturities from primary dealers. Both auctions would settle the following day.

While it would lower rates at the back end of the yield curve, Operation Twist could also nudge front-end rates higher, possibly to the benefit of money market funds scrambling for ultra-safe securities with a yield above zero.

"The way we looked at it, it looks like they could sell something like $265 billion -- everything they hold through June 30, 2013 -- and that could be absorbed with very modest rate movement," said Thomas Simons, money market economist at Jefferies & Co in New York.

"It might push rates a few basis points higher" in shorter-dated Treasuries, he added.

Goldman's Hatzius said such an operation would ultimately remove so much longer-dated debt from the market, its effect would be almost as big as the Fed's last major easing program.

Referred to by many as QE2, the Fed bought $600 billion in Treasuries. Quantitative easing has been considered an effective monetary policy tool when interest rates are near zero.

"This type of operation would be the equivalent of 80-90 percent of QE2 in terms of duration risk removed from the market," Hatzius said. - Reuters

Murdoch and son get big bonuses, James declines

NEW YORK: News Corp awarded Rupert Murdoch and his son James big compensation increases, though James declined his bonus, citing controversy over a phone hacking scandal at the UK newspaper unit that he oversees.

The annual bonus, announced Friday, Sept 2, would have bumped James Murdoch's compensation by 73 percent. His father got a 47 percent increase, bringing his compensation to $33.3 million. The awards came on the same day that two longtime directors said they could quit the media company's board.

James Murdoch was set to get a payout of $17.9 million, boosted by a $6 million bonus and $8.3 million in stock awards. He will now receive $11.9 million. His father's pay was boosted by a $12.5 million bonus and $8.5 million in stock awards.

As head of international operations, James Murdoch has been under media and government scrutiny since the hacking scandal erupted at the London tabloid News of the World on July 4.

There has been speculation that he would have to step down, especially after former News Corp executives challenged the accuracy of his testimony to a UK Parliamentary committee on the phone hacking case.

"While the financial and operating performance metrics on which the bonus decision was based are not associated with this matter, I feel that declining the bonus is the right thing to do," Murdoch said in a statement.

Compensation for Deputy Chairman Chase Carey, News Corp's highest-paid executive last year, rose 16 percent to $30.2 million.

News of the raises may prompt new questions about the board's oversight in light of the hacking scandal.

James Murdoch said he will consult with the board's committee about whether a bonus may be appropriate later.

The compensation committee's members are independent directors. One is Viet Dinh, a former Justice Department assistant attorney general, also is one of the leaders of an internal company probe into the hacking scandal.

Another is Silicon Valley venture capitalist Thomas Perkins, who is leaving the board.


Perkins said on Friday that said he is not leaving the board because of the hacking scandal, and said he supports Rupert Murdoch and the board.

Perkins, a director since 1996, said in an interview that he told Murdoch earlier in the year he did not want to stand for reelection this October.

"I said I don't think the board should have two 80-year olds unless one of them owns the company," said Perkins, who turns 80 later this year. Murdoch turned 80 earlier this year.

Perkins said he offered to stay for a year if needed, but then helped recruit fellow Silicon Valley venture capitalist Jim Breyer, 50, of Accel Partners, to stand for election.

Perkins' decision not to stand appeared controversial in light of the scandal at News Corp, especially when cast against another spying episode. In 2006, he quit the board of Hewlett Packard in protest after the company spied on directors and journalists to find information leaks.

Another long-time News Corp director, Kenneth Cowley, 76, is quitting after 32 years.

The board shuffle comes after corporate governance experts slammed the board for a lack of independence and weak influence in light of the scandal at the News of the World. News Corp closed the paper in July, but the fallout reverberates.

British police arrested a 15th person on Friday in connection with the scandal.

A fresh face on the board may help the company improve its corporate governance image.

Breyer, a partner at Accel Partners, is best known as one of the early investors in Facebook, and also sits on the boards of Wal-Mart Stores and Dell Inc. Breyer comes a few months after News Corp rid itself of social networking site MySpace, whose collapse is widely believed to have been prompted by the success of Facebook.

If Breyer is elected as a director, the board would shrink by one seat to 15 directors. Perkins confirmed that the board is still seeking one more director to boost the ratio of independent to non-independent directors.

There are now eight independent directors and seven News Corp insiders on the board.

Earlier this year, the board was expected to expand to 17 when Murdoch's daughter Elisabeth was set to become the fourth Murdoch family member to join the board. Following the furor over the hacking scandal, Elisabeth Murdoch and the board decided not to pursue the nomination. - Reuters

Friday, September 2, 2011

Berjaya Food explains BStarbucks RM71.6m price tag

KUALA LUMPUR: Berjaya Food Bhd (BFood) said the proposed acquisition of a 50% stake in Berjaya Starbucks Coffee Company Sdn Bhd (BStarbucks) for RM71.69 million was based on the price-earnings (PE) multiples of 13.5 times.

In its response to queries from Bursa Malaysia Securities Bhd on the corporate exercise, BFood said on Friday, Sept 2'' the PE ratio (PER) was based on the audited profit after tax of BStarbucks for the financial year ended April 30, 2011 of about RM10.62 million and the future growth prospects of BStarbucks.

'The PER of 13.5 times as represented by the purchase consideration is within the range of PERs of 10.7 times to 19.0 times for comparable companies in Malaysia,' it said.

To recap, on Aug 25, BFood announced it was buying 11.50 million shares or 50% stake in BStarbucks from Berjaya Group Bhd (BGroup) ' a unit of BERJAYA CORPORATION BHD [] (BCorp).

To finance the acquisition, BFood said it would be satisfied entirely via cash to be raised from a proposed rights Issue and any shortfall will be funded from its own funds and/or borrowings.

The corporate exercise involved a renounceable rights issue of up to 118.94 million new BFood rights shares with up to 118.94 million new free detachable warrants. This would be on the basis of four rights shares with four free warrants for every five BFood shares held at an issue price of 65 sen per rights share.

In response to the stock exchange's query on BFood's future growth prospects, BFood said the BFood group's core business was the food and beverage industry in Malaysia.

'The business of BStarbucks is complementary to that of BFood's Group, as BStarbucks is in the business of providing quality food and beverage to niche and premium markets, catering towards discerning consumers,' it said.

BFood said BStarbucks had 119 Starbucks stores throughout Malaysia and its revenue had been growing from RM116 million for the FYE April 30, 2009 to RM145 million for FYE April 2011.

It added the company had also turned around from a loss of RM1.1 million in the FYE April 2009 to a profit after tax of RM4.2 million in FYE April 2010 and RM10.6 million in FYE 2011. It added BStarbucks expected the improvement of its revenue and earnings to continue in the future.

On the basis for the issue price of the rights shares of 65 sen per share or the discount of 13.3%, it said this was based on the five-day volume weighted average price of BFood shares up to and including Aug 23 of 81 sen and the theoretical ex-rights price (TERP) of BFood shares of 75 sen.

BFood said the TERP as at Aug 25 was 75 sen (without adjusting for full exercise of warrants), based on the closing price of BFood Shares on Aug 23 of 82.5 se.

'Based on the above, the issue price of 65 sen per rights share represents a discount of approximately RM0.10 or approximately 13.3% to the TERP of BFood shares.

'The board believes the 10 sen or approximately 13.3% discount to the TERP of BFood Shares should be sufficiently attractive to entice shareholders to subscribe for their respective entitlements,' it said.

BFood also said the exercise price of 70 sen for each warrant was based on the five-day average price, the TERP of BFood shares (75 sen) and the prevailing market conditions.

It said the 5.0 sen or 6.7% discount of the warrants exercise price of 70 sen to the TERP of BFood shares of 75 sen would make the proposed rights issue more attractive.

Salcon unit gets RM20.4m sub-contract in Terengganu

KUALA LUMPUR: SALCON BHD [] has secured a RM20.4 million sub-contract from Octagon Engineering (M) Sdn Bhd to upgrade and repair Sg Chukai in Terengganu under the Chukai and Kemanan flood mitigation project.

It said on Friday, Sept 2 that its wholly owned subsidiary Salcon Engineering Bhd had on Aug 27 accepted the letter of award for the sub-contract.

It said the contract duration was for 18 months from September 2011 to February 2013.

Salcon said the project was expected to contribute positively to its earnings or the financial year ending Dec 31, 2012.

It said the sub-contract would have insignificant financial impact for the financial year ending Dec 31, 2011 of the Salcon group as the project was mainly on mobilisation and planning stage as well as to the financial year ending Dec 31, 2013.

EPF steps up accumulation of AirAsia shares

KUALA LUMPUR: The Employees Provident Fund (EPF) Board continued to raise its stake in AIRASIA BHD [], with the latest acquisitions involving nearly 10 million shares.

A filing with Bursa Malaysia showed the EPF bought 4.277 million shares on Aug 25 and 5.720 million shares the next day.

The latest acquisitions saw the EPF increasing its shareholding to 346.047 million shares or 12.47%.

AirAsia share price closed at RM3.47 on Aug 25 and at RM3.34 the next day.

The stock was among those with high foreign shareholdings which were sold down by foreign funds.

OSK Research is maintaining AirAsia as one of its Top 10 Buys given its resilient business model that will benefit from downtrading and lower oil prices. It raised its forecasts by between 9% and 16% and its fair value to RM5.18

KLCI closes 1.85% higher on bargain hunting

KUALA LUMPUR: The FBM KLCI started off September on a positive note as bargain hunting on select blue chips sent the 30-stock index up by 1.85% on Friday, Sept 2.

The FBM KLCI gained 26.82 points to close at 1,474.09, lifted by gains including at CIMB, DiGi, KLK and Telekom.

However, analysts said the FBM KLCI was playing catch up with the regional markets, having lost out on the rally over the last four trading days since Bursa Malaysia was closed since Monday afternoon.

Regional and European markets, however, slipped ahead of the US jobs data due to be released later Friday that could be a yardstick for the economic giant's growth momentum.

Meanwhile, signs that Greece will miss its 2011 deficit target of 7.6 percent underscored concerns about the euro zone debt crisis, prompting investors to lighten their risky assets, according to Reuters.

At the regional markets, Hong Kong's Hang Seng Index fell 1.81% to 20,212.91, Japan's Nikkei 225 lost 1.21% to 8,950.74, the Shanghai Composite Index was down 1.09% to 2,528.28, South Korea's Kospi down 0.69% to 1,867.75, Taiwan's Taiex shed 0.01% to 7,757.06 and Singapore's Straits Times Index down 0.84% to 2,843.09.

UOB KayHian in a note Sept 2 said the best rebound plays were downtrodden liquid large caps that were delivering good earnings.

It said such companies on its Buy list were CIMB, Gamuda, GENTING BHD [] and UEM Land.

Other notable downtrodden companies include IOI Corp (Hold) and MMHC (Buy) although MMHC would be a 'second liner' mover given its latest disappointing results, it said.

Notable downtrodden mid-small caps include MRCB (Buy), it said.

'While the global equity markets are taking a respite, we remain cautious and expect equity markets to resume their downtrend, potentially until mid-4Q11.

'Hence, upside to the rebound plays could be capped,' it said.

On Bursa Malaysia, DiGi was the top gainer and added RM1.04 to RM31.26; Lafarge Malayan Cement added 41 sen to RM7, Harrisons 40 sen to RM3.80, Petronas Dagangan and KLK 36 sen each to RM18 and RM21.68, CIMB 33 sen to RM7.40, Parkson 31 sen to RM5.73, Tasek and Quality Concrete 30 sen each to RM7.56 and RM1.54, Telekom 21 sen to RM4.36 while Petronas Chemicals gained eight sen to RM6.30.

Axiata was the most actively traded counter with 45.99 million shares done. The stock fell two sen to RM4.70.

Other actives included E&O, CIMB, Petronas Chemicals, DVM, Telekom, Maybank and AirAsia.

Decliners meanwhile included Metrod, Masterskill, Hong Leong Industries, Faber, Petrol One, SapuraCrest and Southern Acids.


Plantations top gainers, riding on CPO

KUALA LUMPUR: PLANTATION [] stocks held on to their gains in the late afternoon on Friday, Sept 2, underpinned by the near-term positive outlook for crude palm oil (CPO) prices.

At 3.16pm, the FBM KLCI was up 26.81 points to 1,474.08. Turnover was 565.94 million shares valued at RM1.47 billion. Gainers beat losers 428 to 234 while 238 stocks were unchanged.

Kuala Lumpur Kepong rose 38 sen to RM21.70, PPB 32 sen to RM17.18 and IOI Corp 30 sen to RM4.81 while Sime Darby added 10 sen to RM8.89.

CPO for third month delivery rose RM51 to RM3,049, the highest since Aug 23. The recent low was RM2,895 on Sept 9.

Meanwhile, Malaysia's palm oil exports fell 0.6% in August from July, a news wire report said, quoting independent market surveyor Intertek on Friday.

The report said during August, there were 1.622 million tonnes tracked compared with 1.633 million tonnes in July.

However, UOB Kay Hian Malaysia Research was maintaining is Underweight stance on the plantation sector and keeping its net profit forecasts and 2011-2012 CPO average selling price (ASP) assumptions of RM2,900 a tonne (US$980) and RM2,700 (US$900) respectively.

It said the sector catalyst would be an ufavourable weather which would impact the production of oil crops and palm oil.

However, the risks included a potential new plantation export tax structure in Indonesia that would negatively affect the margin for Malaysia-based refineries while a slowdown in global economy might affect demand for CPO products. Another factor would the weather's impact on global oilseed production.

GLOBAL MARKETS-Stocks, euro fall before US jobs data

LONDON: World stocks slipped on Friday, Sept 2 as European shares snapped a four-day rally, while government bonds in Europe climbed, with investors bracing for U.S. jobs data that could reinforce concerns the world's biggest economy is losing momentum.

Signs that Greece will miss its 2011 deficit target of 7.6 percent underscored concerns about the euro zone debt crisis, prompting investors to lighten their risky assets.

The U.S. employment report, due at 1230 GMT, is expected to show an increase of 75,000 jobs, down from 117,000 in July.

"I think the job figures are going to be worse than expected. It could be a wake up call for the market and share prices could go down even further," said Koen De Leus, strategist at KBC Securities in Brussels.

"Expectations of QE3 (another round of quantitative easing) have helped shares in the past days, but at the end of the day, the market needs a better economic environment that stimulates growth and company results."

MSCI's world equity index lost 0.6 percent. It was still on track for a second consecutive weekly gain after a volatile August that pushed the benchmark index to an 11-month low at one point.

European stocks fell 1 percent after rising so far this week, while emerging stocks dropped 0.6 percent following a five-day rally.

U.S. crude oil was down 0.3 percent at $88.60 a barrel.

Bund futures rose 43 ticks, supported by weak demand at this week's Italian and Spanish debt sales and dismal manufacturing figures on Thursday.

A senior government official told Reuters on Thursday that Greece expects its 2011 budget deficit to reach 8.1 to 8.2 percent of GDP, missing a 7.6 percent target, while its EU and IMF lenders see an even bigger shortfall and are pressing for more reforms.

Italy, a recent victim of a debt market sell-off, is hesitating in passing austerity measures, and questions remain over how long European Central Bank forays in the secondary debt markets can keep Italian and Spanish yields in check.

Finland's demands for collateral in exchange for financial aid have raised worries that the second Greek bailout could be derailed, and some members of German Chancellor Angela Merkel's coalition have threatened to oppose key new powers proposed for the euro zone bailout fund in a parliamentary vote on Sept. 29.

The euro lost a quarter percent to a three-week low of $1.4207.

The dollar rose 0.2 percent against a basket of major currencies. - Reuters

SABMiller seeks official review of Foster's accounts

MELBOURNE: Global brewer SABMiller, embroiled in a $10 billion battle to take over Foster's Group , has asked Australia's Takeovers Panel to examine financial statements made by Foster's that it claims are "misleading and deceptive."

SABMiller has made a A$4.90 per share hostile bid for Foster's, Australia's largest brewer, which Foster's board rejected as being too low to be "worth discussing."

Foster's released a statement from the takeover watchdog to the stock exchange on Friday, Sept 2, which said SABMiller had asked the panel to force Foster's to clarify information released in its financial statements.

Analysts said while it was not uncommon for a takeover predator to take issue with comments that a target company makes in relation to the bid, it was more unusual for a suitor to attack its target's accounting methods and profit statements.

"My impression is that they are trying to do everything they can to make sure they don't have to increase their offer price," said Daniel Nelson, an analyst at Constellation Capital Management.

Foster's, the maker of Victoria Bitter, Carlton Draught and Pure Blonde, reported a 9 percent slide in second-half profit on Aug. 23, a rare decline with beer margins falling for the first time in a decade and volumes declining.

In a statement, the Takeovers Panel said SABMiller claimed that Foster's had made "misleading and deceptive" statements in its profit announcement last month.

SABMiller argued there was "no reasonable basis" for several forward-looking statements made in Foster's results presentation, according to the Takeovers Panel.

SABMiller also claimed that the net debt figures published by Foster's did not meet Australian accounting standards.

George Durbridge, acting counsel on the Takeovers Panel, said the body would assemble a panel of experts on Monday to review the application by SABMiller.

If the panel decides to review the merits of SABMiller's claims, a final decision on the case could come within two weeks, he told Reuters.

A spokesman for Foster's said the brewer could make no comments on the claims by SABMiller because the matter was before the Takeovers Panel.

SABMiller, the world's second-largest brewer, took its offer directly to shareholders last month after the Foster's board rejected its initial approach. Shareholders are hoping for an offer above A$5 a share.

SABMiller, which makes Peroni, Grolsch and Miller Lite, has long been seen as the favourite to take over Foster's given the lack of potential rivals and the London-based brewer's desire to have a range of global businesses.

Shares in Foster's ended flat at A$4.86 on Friday, below the A$4.90 offer from SABMiller, but outperforming a broader market down 1.5 percent. - Reuters

Underweight on plantations

KUALA LUMPUR: UOB Kay Hian Malaysia Research is maintaining is Underweight stance on the PLANTATION [] sector and keeping its net profit forecasts and 2011-2012 crude palm oil (CPO) average selling price (ASP) assumptions of RM2,900 a tonne (US$980) and RM2,700 (US$900) respectively.

It said on Friday, Sept 2 that the sector catalyst would be an ufavourable weather which would impact the production of oil crops and palm oil.

However, the risks included a potential new plantation export tax structure in Indonesia that would negatively affect the margin for Malaysia-based refineries while a slowdown in global economy might affect demand for CPO products. Another factor would the weather's impact on global oilseed production.

In its comments on the plantations sector, it said the April to June 2011 quarterly results were mostly in line with expectations, with the exception of Sime Darby.

UOB Kay Hian Research said Sime Darby posted stronger-than-expected results on the back of strong performance from its motor and industrial divisions, and this was coupled with improved margins from its plantation division on better cost control.

'Overall, 2Q11 results posted strong year-on-year growth due to strong fresh fruit bunches (FFB) production and high CPO selling price, with the exception of IOI Corporation which posted lower earnings year-on-year on the back of weaker contribution from its resource-based manufacturing segment (-54.1% on-quarter, -37.6% on-year) that was suffering from lower sales and lower margins.

However, the downstream business posted negative on-quarter growth for all companies

The research house, in maintaining its Underweight recommendation on the sector, said it was'' less bearish on CPO price but the decreasing CPO price trend might stretch into 1Q12 on the back of high inventory level as demand is unable to catch up with the strong supply.

UOB Kay Hian Research said its top sell was IJM Plantations (Target: RM2.30) given its high valuation. Its only Buy for this sector in Malaysia was Sime Darby (Target: RM10.40) for its turnaround in operations leading to stable earnings growth. A potential catalyst could come from potential enhancement M&A domestically and globally.

To recap, it said all plantation companies recorded stronger fresh fruit bunches (FFB) production in 2Q11 due to strong yield recovery in Malaysia and high ASP. Strong yield recovery in Malaysia especially in Sabah and Sarawak has enhanced production in Sabah estates.

However, it raised concerns about the lower margin and lower sales for the downstream segments.

Companies such as IOI Crop, Kuala Lumpur Kepong and Sime Darby recorded weaker on-quarter profit for their downstream business.

This might due to: a) limited ability to pass down earlier high raw material costs that resulted from the sharp correction in CPO price in the last two weeks of June 2011, and b) thin or negative refining margins due to the sharp fall in RBD palm stearin price.

In its assessments of Sime Darby and IJM Plantations were the top performers in 2Q11. IJM Plantation benefitted from the strong yield recovery in Sabah and its active forward selling policy which enabled it to lock in higher prices.

Sime Darby's performance was boosted by the better-than-expected growth in its plantation (+88.4% on-quarter , +221.8% on-year), industrial (+52.4% on-quarter, +69.9% on-year) and motor (+16.9% on-quarter +31.4% on-year) divisions.

UOB Kay Hian Research said IOI Corporation was the weakest performer. It recorded a negative on-quarter growth of 16.6% and flat on-year net profit growth in 2Q11. This was mainly due to the lower contribution from its downstream business which were affected by the lower sales and margins across all segments.

Meanwhile, it upgraded Sime Darby from a Hold to Buy with a higher target price of RM10.40 from RM9.75 based on sum-of-the-parts (SOTP).

'We have raised our earnings forecasts for FY12 and FY13 by 6.5% and 9.3% respectively to factor in the stronger-than-expected performance for its industrial and motor divisions,' it said.

As for IJM Plantations, it cut the target price to RM2.30 to factor in the higher interest expense. This is caused by its debt funding for the new planting investment of RM600 million in Indonesia over the next four years, which offsets its upward revision of FFB production growth to 6%-7% on-year from 5%.

On the outlook for CPO, it said the CPO prices were expected to be stable in 3Q11 due to the slowdown in production as a result of less harvesting days during the Hari Raya festive holidays and biological effect after the strong production in 2Q11. Also, demand for palm oil products from China and energy producers in Europe would remain strong in 3Q11 before entering the cooler weather season in 4Q11.

However, it said a delay in the next peak production season to 4Q11 which also coincides with the low demand season could result in a further decline in CPO prices as they react negatively to rising inventory level.

On the weather, it raised concerns that excessive rainfall in 1H11 might affect the pollination in 2H11. For instance, Sabah received higher-than-average rainfall from January to April.

While sufficient rainfall was important for palm oil productivity, excessive rainfall could also affect the pollination and fruits, and hence affect the FFB production in Sabah estates, it said.

KLCI bucks the trend among regional markets

KUALA LUMPUR: The FBM KLCI bucked the trend among regional markets and rose more than 1.5% at the mid-day break on Friday, Sept 2, lifted by select blue chips.

However, analysts appeared to be sceptical about the prospects for the local bourse going forward and had reduced their forecasts for this year after a generally disappointing set of second quarter results.

At 12.30pm, the 30-stock index added 23.38 points to 1,470.65. Gainers led losers by 393 to 202, while 233 counters traded unchanged. Volume was 450.3 million shares valued at RM1.16 billion.

The ringgit weakened 0.24% to 2.9700 versus the US dollar; crude palm oil futures for the third month delivery rose RM40 per tonne to RM3,038, crude oil slipped 24 cents per barrel to US$88.69 while gold gained US$3.53 an ounce to US$1,829.68.

Regional markets were in the red as investors took profit ahead of a US labour market report due later on Friday. Japan's Nikkei 225 fell 1.45% to 8,929.60, Hong Kong's Hang Seng Index down 1.32% to 20,313.99, the Shanghai Composite Index lost 1.28% to 2,523.30, South Korea's Kospi fell 0.79% to 1,865.91, Singapore's Straits Times Index down 0.64% to 2,848.88 and Taiwan's Taiex shed 0.13% to 7,747.48.

Maybank Investment Bank Research said'' as overcast skies continue to loom, it expects volatility in global equities to persist. However, it expected the strong domestic fundamentals to provide the support.

'Our 2011 year-end (YE) target of 1,660 derived from 14.5 times 2012 price-to-earnings ratio (PER), is no longer realistic. After incorporating for lower corporate earnings growth forecasts, our new YE target is 1,520 pts on a bottom-up approach, which implies 13.6 times forward earnings.

'We also introduce 2012 YE target of 1,650 which has not imputed any expansion in PER multiples,' it said.

At Bursa Malaysia, key stocks were among the top gainers. DiGi rose RM1.06 to RM31.28, Lafarge 45 sen to RM7.04, Petronas Dagangan and KLK 36 sen each to RM18 and RM21.68, Harrisons 35 sen to RM3.75, BAT 34 sen to RM44, Tasek and Parkson 30 sen each to RM7.56 and RM5.72, Petronas Gas and PPB 26 sen each to RM13.48 and RM17.12, while CIMB added 19 sen to RM7.26.

Axiata was the most actively traded counter with 24.4 million shares done. The stock shed one sen to RM4.71.

Other actives included E&O, CIMB, Petronas Chemicals, MUI, Sime Darby and Maybank.

Losers included Petrol One, Southern Acids, AIC, Hong Leong Industries, Toyo Ink, Faber, Masterskill, United PLANTATION []s, Perduren and Nestle.

Sticking to defensive stocks

KUALA LUMPUR:'' The outlook on the global economy and the European sovereign debt crisis remains hazy going into September especially after the selldown in global equities, says OSK Research.

The research house said on Friday, Sept 2 that for September, it would continue to stick to its defensive top buys which have recession resilient business models and some capacity to rebound after the recent sell-off.

It said despite the 6.5% drop in the FBM KLCI in August was in line with the global sell-off in equities, it believed the outlook on the global economy and the European sovereign debt crisis remained hazy.

OSK Research said investors should avoid aggressive bottom fishing and it advised investors to stick to defensives with some rebound capacity, especially with 2Q2011 earnings looking decidedly weak.

'We foresee a 1% - 2% cut in our earnings growth forecast and KLCI year-end target,' it said.

The research house cautioned the selldown in global equities in August reflected uncertainties over global economic growth as well as the concerns over sovereign debt positions in Europe.

'We believe these uncertainties have yet to be resolved,' it said.

To recap, OSK Research said August, which was the month of Ramadhan, saw strong news flow in Malaysia.

Among the corporate news were the share swap between shareholders of MALAYSIAN AIRLINE SYSTEM BHD [] and AIRASIA BHD [], the sale of ExxonMobil units to San Miguel, the award of a small field contract to Dialog and Sime Darby's purchase of a 30% stake in Eastern and Oriental Bhd being amongst the more noteworthy news.

OSK Research, which was scheduled to issue its full results round-up on Monday, Sept 5, said the preliminary indications were the 2Q2011 results were below expectations.

'As such, we are likely to see a 1.0 to 2.0 percentage point cut in our 17.1% earnings growth forecast for 2011 and 12.8% estimate for 2012.

'This will likely lead to a cut in our year-end 1557 pts KLCI target although we will likely leave our 2012 KLCI fair value of 1,466 intact on a higher price-to-earnings ratio (PER),' it said.

OSK Research said despite the 6.5% fall in the KLCI in August, it believed that uncertainties on the global economic outlook would linger.

It advised investors to continue to focus on defensive stocks while nibbling at some rebound plays in September.

'For those with a higher risk appetite, trading in recession resilient Mid Caps that have been sold down such as AirAsia, KPJ Healthcare and Supermax is an option,' it said.

It also advised strongly against aggressive bottom fishing at this level as yet.

The research house said it continued to see a potential KLCI maximum for the remainder of the year at 1,557. The potential KLCI minimum for the remainder of the year was 1,378.

As for 2012, the KLCI fair value was 1,466, it said.

Despite the cautious outlook, OSK Research said a short term rebound was possible.

'Given the reasonable rally in global markets over the past week when the KLCI was closed for holidays, a modest rebound in the KLCI is to be expected. Nonetheless, given uncertainties in the global economic outlook, we would caution against an aggressive bottom fishing strategy at this point in time,' it said.

OSK Research said in view of the strong possibility of an early general elections by year-end, the re-election of the current Barisan Nasional government might spur a modest rally in the market post elections.

Hence, its view was that a better time to bottom fish might be when profit taking accelerates ahead of the election date.

'Some trading positions may be taken in Mid Caps. While we continue to advocate a generally Defensive strategy, investors with higher risk appetite may wish to trade in selected Mid Caps that have been sold down of late and might appear attractive,' it said.

The research house advocated Mid Caps with longer term recession resilient business models such as KPJ Healthcare and Supermax.

It explained bashed-down Mid Caps tend to outperform when a recovery sets given their high degree of recovery.

Tan Sri Ismail Adam appointed Prasarana chairman

KUALA LUMPUR: ''Former Public Services Department director general''Tan Sri Ismail Adam has been appointed Chairman of Syarikat Prasarana Negara Berhad (Prasarana) with effect from Sept 1, 2011.

He assumes the chairmanship from Tan Sri Izzuddin Dali who retired from the position.

In a statement Friday, Sept 2, Prasarana said Ismail was currently advisor to Hay Group Sdn Bhd, a member of the Royal Court of Selangor, and sits as an independent non-executive director of Bank Islam Holdings Bhd.

Ismail meanwhile thanked Prime Minister Datuk Seri Najib Razak for his confidence in him, and giving him the opportunity to further improve Malaysia's public transportation system.

'Public transportation has been identified as one of the key areas for development by the Government and personally, I am very impressed with the efforts that Prasarana had made in transforming the public transportation system especially for Klang Valley and Penang,' he said.

Ismail is holds a Master of Arts (Economics) from Vanderbilt University (USA) and a Bachelor of Arts (Economics) (Hons) from the University of Malaya.

He also attended the Advanced Management Program at Harvard Business School.

He has been in civil service for over 38 years, holding various senior positions including that of chief administration offficer of the Department of Statistics, director-general of the National Productivity Corporation, and secretary general of the Ministry of Health.

Ismail retired from the civil service as the PSD director-general in 2010.


Blue chips lift KLCI at mid-morning

KUALA LUMPUR: The FBM KLCI resumed trade on Friday, Sept 2 after a three-day break on a slightly firmer note, helped by some bargain hunting of blue chip stocks battered over the past few weeks during a disappointing August.

At 10am, the FBM KLCI was up 23 points to 1,470.27, lifted by gains including at CIMB, DiGi, BAT and Petronas counters.

Gainers led losers by 318 to 91, while 154 counters traded unchanged. Volume was 205.01 million shares valued at RM543.84 million.

At the regional markets, Japan's Nikkei 225 fell 1.11% to 8,960.59, Hong Kong's Hang Seng lost 0.57% to 20,468.09, Taiwan's Taiex down 0.43% to 7,724.76 and South Korea's Kospi fell 0.39% to 1,873.29.

Meanwhile, the Shanghai Composite Index edged up 0.01% to 2,556.28 and Singapore's Straits Times Index gained 0.02% to 2,867.67.

BIMB Securities Research in a note Sept 2 said a topsy-turvy US stock market continued with sell down on banks despite a favourable manufacturing data and as a result the DJI Average was down by almost 120 points.

Investors eyes will be peeled to the job report today with consensus estimated an addition of 75,000 jobs, it said.

As for the regional bourses, we expect it to be another mixed trading day as like yesterday.

'On the local front, despite our 3-day closure, we did not miss any action as Wall Street was almost flat down a mere 46 points (from Monday's close).

'We reckon today's trading would be thin with the benchmark FBM KLCI to realise some gains following last week's unrelenting selling on key component stocks,' it said.

On Bursa Malaysia, DiGi was the top gainer at mid-morning and added RM1.06 to RM31.28; BAT rose 68 sen to RM44.34, Lafarge Malayan Cement 43 sen to RM7.02, Petronas Dagangan and KLK 40 sen each to RM18.04 and RM21.72, Petronas Gas 28 sen to RM13.50, CIMB 17 sen to RM7.24 and Petronas Chemicals 15 sen to RM6.37.

Axiata was the most actively trade counter with 11.9 million shares done. The stock fell two sen to RM4.70.

Other actives included Petronas Chemicals, E&O, CIMB, Ramunia, Maybank and DVM.

Decliners at mid-morning included Nestle, Petrol One, Manulife, Masterskill, RHB Capital, Daiman and DKSH.

US to sue big banks over mortgage securities-NYT

WASHINGTON: The agency that oversees U.S. mortgage markets is preparing to file suit against "more than a dozen" big U.S. banks, accusing them of misrepresenting the quality of mortgages they packaged and sold during the housing bubble, the New York Times reported on Thursday.

The Federal Housing Finance Agency, which oversees mortgage giants Fannie Mae and Freddie Mac, is expected to file suit against Bank of America, JPMorgan Chase, Goldman Sachs and Deutsche Bank, among other banks, the Times reported, citing three unidentified individuals briefed on the matter.

The suits stem from subpoenas the finance agency issued to banks last year. ' Reuters

Masterskill extends losses on poor result, downgrade

KUALA LUMPUR: Masterskill Education Group Bhd (MEGB) extended its losses on Friday, Sept 2 after its disappointing second quarter financial results and weaker outlook.

At 11.15am, Masterskill fell eight sen to RM1.24 with 3.2 million shares done.

Its second quarter results fell 48% to RM11.57 million from RM22,430 a year ago while its revenue declined 14.7% to RM65.78 million from RM77.11 million. For the first half, its earnings declined by 30.4% to RM34.16 million from RM49.11 million.

CIMB Equities Research had downgraded the stock from Outperform to Neutral, reducing its target price and also slashing its earnings per share (EPS) forecast.

CIMB Reseach on June 29 said Masterskill's annualised 1H11 core net profit was a letdown, coming in at 43% below its forecast and 40% below consensus because of poor student numbers and a 10.8 percentage points shortfall in EBITDA margin due to surprisingly high operating costs.

'The 44% year-on-year plunge in net student intake was a negative surprise and should be equally weak in 2H. In the medium term, student intake prospects are unexciting and margins will be under pressure,' it said.

CIMB Research also slashed its FY11-FY13 EPS forecasts by 43%-45% and dividends per share (DPS) forecasts by 53%-54%.

The research house also said it had cut the target price from RM3.48 to RM1.71 as it raised its discount to the 14.5 times market P/E from 30% to 40%, which lowered its target CY12 price-to-earnings from 10.2 times to 8.7 times.

'Our rating is downgraded from Outperform to NEUTRAL. The stock's sole attraction is its dividend yield of 5%-7%,' it said


CIMB Research has Technical Sell on Wijaya Baru Global

KUALA LUMPUR: CIMB Research has Technical Sell on Wijaya Baru Global at 62 sen at which it is trading at a price-to-book value of 0.4 times.

The research house said on Friday, Sept 2 after featuring Wijaya Baru Global as a technical buy stock on Aug 15,'' prices rallied to a high of 77 sen. This rebound, however, has failed to take out its previous peak of 78.5 sen.

'A double top pattern may be in the making. Hence, traders should stay vigilant here. Once the 50-day SMA (now at 58.5 sen) is taken out, prices are likely to fall towards its neckline support at 52 sen.

'Technical landscape is weak. MACD histogram bars have slipped into the red while RSI has also hooked downward. Hence, selling into strength looks like a good option here. Put a buy stop at 65 sen to 71.5 sen, just in case,' CIMB Research said.

E&O active, extends gains

KUALA LUMPUR: Eastern & Oriental Bhd (E&O) shares extended their gains and were actively traded on Friday, Sept 2 after SIME DARBY BHD [] said'' it was acquiring a 30% strategic stake in E&O at RM2.30 per share or RM766 million.

At 9.25am, E&O was up six sen to RM1.55 with 5.09 million shares.

Sime Darby had said on Aug 29 that the acquisition was to extend its presence in the property development and hospitality sectors, beyond the Greater KL region, specifically in Penang and Johor.

Sime Darby said it was acquiring 273 million E&O Shares and 60 million irredeemable convertible secured loan stocks (ICSLS) in E&O -- which on a fully diluted basis -- was about a 30% equity interest in the niche property developer.

Sime Darby will acquire the stake from E&O managing director Datuk Tham Ka Hon and several other major shareholders of E&O.

Bothe companies also entered into a three-year collaboration agreement to formalise a framework for their property development businesses.

CIMB Research has Technical Buy on Eng Kah

KUALA LUMPUR: CIMB Research has a Technical Buy on Eng Kah Corporation at RM2.98 at which it is trading at a price-to-book value of 2.3 times.

The research house said on Friday, Sept 2 the recent correction dragged prices towards its 200-day SMA.

It said since then, the bulls have made a comeback. On Monday, the candle broke out of its triangle resistance, and this could be seen as a prelude to more upside ahead.

CIMB Research said buying momentum should pick up once the 30-day and 50-day SMAs at RM3.01-RM3.06 is taken out.

'MACD has staged a positive crossover. RSI too has hooked upward. Hence, we have reasons to believe that the rebound is not over yet. The next upleg should lift prices towards RM3.16 and RM3.41 next.

'Aggressive traders may start to buy now while others should wait for a push above RM3.06. Put a stop at below RM2.80,' it said.

Eng Kah manufactures perfumes, cosmetics, skin care, toiletry and household products.

Harrisons up on interim dividend

KUALA LUMPUR: Harrisons Holdings (Malaysia) Bhd shares advanced on Friday, Sept on higher investor interest after the company declared a special interim gross dividend of 50 sen per share for the financial year ending Dec 31, 2011.

At 9.40am, Harrisons jumped 33 sen to RM3.73 with 114,600 shares traded.

The ex-date was Sept 15 and the entitlement date was Sept 20.



CIMB Research has Technical Sell on KSL Holdings

KUALA LUMPUR: CIMB Research has a Technical Sell on property player KSL Holdings at RM1.57 at which it is trading at a price-to-book value of 0.7 times.

The research house said on Friday, Sept 2 that after violating its support trend line, prices dipped to a low of RM1.46 before a technical rebound took place. This bounce, however, stopped near its 38.2% FR level and we think it has exhausted, it said.

CIMB Research said the technical landscape remains lethargic. MACD was still hovering in the deep negative territory while RSI was below the 30 points mark.

'Our strategy here is to unload on strength, especially near the RM1.60-RM1.70 resistances. On the downside, support is seen at RM1.46 and RM1.37. However a rise above RM1.75 would prompt us to review our call,' it said.

ECM Libra downgrades end-2011 KLCI target to 1,450

KUALA LUMPUR: ECM Libra Investment Research has downgraded its end-2011 FBM KLCI target to 1,450 from 1,650 and said 2QCY11 earnings season was the second in succession which it deemed to have disappointed as negative earnings surprises exceeded positive earnings surprises.

In a market strategy report on Friday, Sept 2, ECM Libra said that earnings growth momentum was also waning as it cut CY11 and CY12 aggregate earnings of stocks within coverage by 2.3% and 2.1% respectively.

'As such, we are downgrading our end-2011 FBMKLCI target from 1,650 to 1,450 by pegging a lower 13x P/E to reflect higher risk aversion and risk of further earnings downgrades,' it said.

ECM Libra said the proportion of corporate results coming in below expectations at 16% exceeded that of those coming in above expectations at 14%, adding that when compared against consensus estimates, these corporate results also failed to meet street expectations with corporate results coming in below expectations at 33% exceeding those coming in above expectations at 14%.

It said PLANTATION [] stocks Sime Darby, KLK and IJM Plantation led the positive earnings surprises, while other stocks which also outperformed included AMMB, Wah Seong, SP Setia and Litrak.

Energy dependent stocks such as MAS, Tenaga and Lafarge led the negative earnings surprises due to high crude oil and coal prices, it said.

Other stocks which also underperformed include Axiata, Maxis, QL Resources, YNH Property and Notion VTec, it said.

OSK Research drops YNH Property from coverage

KUALA LUMPUR: OSK Research has dropped YNH Property from its coverage with a Not Rated recommendation. It previously had a Buy recommendation on YNH with a fair value of RM3.03.

The research house said on Friday, Sept 2 YNH's 1HFY11 results came in below its and consensus expectations, accounting for around 40.7% and 39.1% of its and consensus FY11 net profit forecasts.

'Year-on-year revenue was down by 34.8% due to lower contribution from CONSTRUCTION [] revenue, but net profit was only 2.1% lower year-on-year owing to better operating margins. Nevertheless, due to resource re-allocation and portfolio reshuffling, we are ceasing our coverage on YNH with a Not Rated recommendation,' it said.

OSK Research said YNH reported a net profit of RM30.1 million for 1HFY11, which was below expectations, as the 1HFY11 net profit only accounted for around 40.7% of its FY11 forecast.

Year-on-year revenue fell 34.8%, driven by significantly lower construction revenue. However, net profit was only down by a far smaller 2.1%, attributed to higher margins as the result of lower construction revenue, which typically commands lower margins.

'EBIT margin for 1HFY11 improved significantly to 43.6% versus 30.4% over the same period last year. Quarter-on-quarter revenue was down by 12.2%, attributed to flat progress billings as well as the absence of sales of shop lot land parcels in Manjung in 1QFY11,' it said.

OSK Research sees plantations set for a rally

KUALA LUMPUR: OSK Research expects a run up in palm oil prices which will luft the prices of PLANTATION [] stocks in the short term.

It said on Friday, Sept 2 that soybean price ran up as high as US$14.56 per bushel, taking out its 2011 peak at US$14.20.

OSK Research said soybean price is now at its highest level since mid 2008 as adverse weather in the US threatens to lower yield.

Quoting the International Grains Council, it said the unfavorable hot and dry weather and lower acreage will lower the US's soybean production by 8.2% to a three-year low of 83.2 million tonnes. Soybean oil also moved in tandem, touching a high of 58.68 US cents per pound but has yet to make year-high.

'The rally has widened palm oil's discount to soybean oil to US$249 per tonne. In 2008 when flood in the US Midwest threatened yields, the spread widened to as much as US$400 per tonne.

'Despite the spread widening, we believe palm oil price will be pulled along, especially when palm oil yield in Indonesia and Malaysia is also under threat,' it said.

OSK Research said although it did not expect soybean price to run up so soon, it was a matter of timing as soybean planting in North America this season will have an increase of frost risk due to the late completion of planting, which leads to later harvesting. 'The rally also supports our thesis of a short-term rally in palm oil price possibly up to RM3,500 to RM3,600 per tonne levels. This is despite palm oil price falling below the RM3,000 levels as we saw no follow through selling below that level, which tells us that palm oil price will not stay below RM3,000 for long,' it said.

OSK Research said with financial results of plantation companies in the June quarter being satisfactory and forecasts having been broadly upgraded, it'' believed plantation stocks were poised for a rally.

'We like fairly liquid names such as Golden Agri (Buy, FV S$0.89), First Resources (Buy, FV S$1.68), London Sumatra (Buy, FV 3,096 rupiah) and Kulim (Buy, FV RM4.45) for the purpose of this short term rally.

'We continue to believe that 2012 average palm oil price will be lower than 2011 hence most companies will still experience a decline in earnings in the mid term. Nevertheless, a run-up in palm oil price, should it occur as we expect, will still lift the prices of plantation stocks in the short term,' it said.

HDBSVR sees positive performance for KLCI

KUALA LUMPUR: Hwang DBS Vickers Research expects the Malaysian stock market to register a positive performance on Friday, Sept 2 after the three-day break.

'The benchmark FBM KLCI will probably climb towards its immediate resistance level of 1,465 ahead,' it said.

HDBSVR said during the break, many regional peers bounced up. Over the three-day period, the biggest jumps were posted by China shares listed in Hong Kong (+3.9%), Hong Kong (+3.6%) and Korea (+2.8%).

'This could pave the way for Malaysia equities to play catch-up when trading resumes this morning. But given the still uncertain medium-term stock market outlook, investors may prefer defensive names that offer attractive yield returns,' it said.

The research house said they included Harisson Holdings which announced a special interim net dividend per share of 37.5 sen (translating to a yield of 11.0%); and (b) Opcom Holdings, after declaring a special interim single-tier dividend per share of 22.5 sen (implying a yield of 27.6%).

KLCI resumes trade on firmer note

KUALA LUMPUR: The FBM KLCI resumed trade on Friday, Sept 2 after the Hari Raya and Merdeka Day holidays on a firmer note as blue chips lifted the index above the 1,480-point level.

At 9.05am, the index rose 33.05 points to 1,480.32 with investors picking up on stocks that had been battered over the past two weeks toward end-August.

Among the early gainers were DiGi, UMW, BAT, KLK, Sime Darby and Maybank.

The actives included Axiata, Petronas Chemicals, E&O and Genting Malaysia.

Europe rejects IMF call for more bank capital

FRANKFURT: European politicians on Thursday, Sept 1 rejected an International Monetary Fund call for banks to raise up to 200 billion euros ($290 billion) in new capital, adding to fears that policymakers may be underestimating the severity of the debt crisis.

IMF chief Christine Lagarde's call on Saturday for mandatory capitalization of European banks to prevent a world recession has reignited a debate over whether they have raised sufficient capital to withstand a severe downturn.

The IMF, the International Accounting Standards Board (IASB) and bank analysts have voiced concerns about a capital shortfall, while European regulators, politicians and banking associations argue that banks have a sufficient cushion to cope with market turbulence and worries over sovereign debt after several rounds of capital raising across the continent.

A European source told Reuters on Wednesday that the IMF had estimated European banks could face a capital shortfall of 200 billion euros, a figure rejected by European bankers and policymakers.

The IMF figure is much higher than European Union estimates of banks' capital needs following stress tests in July which showed banks needed to raise 2.5 billion euros ($3.6 billion), less than had been expected before the tests.

The stress tests failed to account for significant losses on sovereign debt held on bank balance sheets, a factor criticized this week by accounting body IASB, which said European financial institutions should have been more consistent in booking losses on Greek government bonds.

Writedowns disclosed in bank results have varied between 21-50 percent.

European Union Competition Commissioner Joaquin Almunia said on Thursday: "I think we should trust in our stress test exercise. It is much more detailed and is a bottom-up exercise. The IMF is a top-down exercise based on estimates on the evolution of credit default swaps."

However he cautioned that the tests, which gave an accurate picture of banks at present, could be overtaken by events.

"I think the stress tests were correct, unless we would not be able to manage the sovereign debt crisis," he said, but didn't want to elaborate.

European banks became more expensive to insure against default on Thursday, mirroring a trend in the broader market, with French banks in particular taking a knock.

The iTraxx Senior index and iTraxx Main were both quoted 2.4 percent wider.

At 1555 GMT, credit default swaps (CDS) on French bank Societe Generale (SOGN.PA) were quoted 5 basis points wider in senior five-year CDS, with BNP Paribas (BNPP.PA) 3 basis points wider and Credit Agricole (CAGR.PA) about 7.5 basis points wider.

In a note sent to institutional clients on August 16, a Goldman Sachs strategist argued that European banks needed as much as $1 trillion in capital, The Wall Street Journal reported. The report did not make clear by when the capital was needed.

Matthew Clark, banking analyst at Keefe Bruyette & Woods said it was important to determine the nature of a capital shortfall, and to distinguish between banks struggling to refinance themselves on a day-to-day basis and banks that can use retained earnings to meet future requirements.

Key parts of the Basel III regulations do not come in to force until 2013, Clark said, giving banks some time to plug the gap.

European bank shares were lower at 1629 GMT, with the Stoxx 600 banking index .SX7P down 1 percent.

Figures on Thursday also showed euro-priced bank-to-bank lending rates edged higher, driven by concerns about the outlook for the economy and euro zone banks.


The fight over whether European banks have sufficient capital highlights a flaw in the accounting treatment of sovereign debt, experts say.

"One enormous weakness is that European banks are encouraged to load up on sovereign debt without pricing in the appropriate risk penalty," said Roger Myerson, winner of the Nobel memorial prize in economics in 2007. "It creates the wrong incentives for governments and banks."

Myerson, who was recognized for his contributions to mechanism design theory, said that under Basel accounting rules, sovereign debt is still given a risk weighting of zero.

This encourages banks to buy risky debt without having to build an appropriate capital cushion, and provides an incentive for governments not to address their deficit levels since they are still able to issue debt.

"This looks like the entire problem of the euro zone," Myerson told Reuters.

Eurozone governments and the European Central Bank disagree with the "very questionable" methodology of the IMF estimates on bank capital requirements, a European government official said. The European Central Bank declined to comment.

The European Commission reiterated on Thursday it saw no need for drastic action since the publication of the stress test results, echoing comments made by the European Banking Authority on Tuesday.

The view was echoed by the German Banking Association BdB which represents lenders such as Deutsche Bank (DBKGn.DE) and Commerzbank (CBKG.DE), and the VOEB, which represents troubled lenders such as WestLB. Both questioned the IMF's methodology and insisted there was no immediate need to inject capital into German banks.

France took a similar line on its banks, whose shares came under intense pressure during August amid concerns over access to funding, with French Budget Minister Valerie Pecresse saying they were not a cause for concern. - Reuters

Wall Street's 4-day rally grinds to a halt

NEW YORK: Wall Street's four-day rally ground to a halt on Thursday, Sept 1 with major indexes falling 1 percent on caution ahead of a key labor market report expected to underscore fears the economy is headed for another recession.

Financials were the biggest losers, selling off sharply in the afternoon, led by Goldman Sachs Group Inc (GS.N). Goldman's shares fell 3.5 percent to $112.16 after agreements with the Federal Reserve and New York state's banking regulator over wrongful foreclosures raised concerns that Goldman is still not yet off the hook.

JPMorgan Chase & Co (JPM.N) and Bank of America Corp (BAC.N) were the two biggest losers on the Dow, both falling more than 3 percent.

A day ahead of the government's release of monthly payrolls data, a decline in the employment component of the Institute for Supply Management's factory activity index heightened worries that August jobs growth will be weaker than feared. ISM's factory activity index came in only just above the level that indicates growth.

Recent employment indicators suggest "zero growth in private payrolls," said Jack Ablin, chief investment officer at Harris Private Bank in Chicago. "If that comes to pass we are going to have some big disappointments tomorrow."

In another discouraging sign, the White House, already struggling to turn around the high U.S. unemployment rate, cut its economic growth outlook for the next two years.

After dropping more than 17 percent from early July to early August, the S&P 500 had risen by 9 percent heading into Thursday's session, leaving investors reluctant to place big bets a day ahead of the August labor report, which is expected to show an increase of 75,000 jobs.

"The news over the past few days hasn't been conducive to the rally continuing, said Randy Bateman, chief investment officer of Huntington Asset Management in Columbus, Ohio.

Bateman, who helps oversee $14.5 billion, said he was not optimistic about the payroll report being strong.

The Dow Jones industrial average .DJI was down 119.96 points, or 1.03 percent, at 11,493.57. The Standard & Poor's 500 Index .SPX was down 14.47 points, or 1.19 percent, at 1,204.42. The Nasdaq Composite Index .IXIC was down 33.42 points, or 1.30 percent, at 2,546.04.

The benchmark S&P gained more than 5 percent during the four-day rally that ended on Wednesday on increasing hopes for a new stimulus plan from the Federal Reserve at its meeting in late September.

Shares of Netflix Inc (NFLX.O) fell as much as 10 percent in extended trading after Starz Entertainment said it would stop distributing its content on the online movie renter's streaming platform. Netflix stock later pared losses to trade down 5.5 percent at $211.06.

Ciena Corp (CIEN.O), a communications equipment maker, jumped 20 percent to $14.71 after posting a profit for the first time in three years. Cisco Systems Inc (CSCO.O), the network equipment maker, gained 1 percent to $15.82 and led the Dow.

The S&P retail index .RLX fell 1.2 percent as retailers reported August same-store sales that were slightly below expectations as Hurricane Irene drove business away from some stores. Target Corp (TGT.N) fell 1.2 percent to $51.06 while Costco Wholesale Corp (COST.O) added 1.2 percent to $79.48.

U.S. CONSTRUCTION [] spending fell unexpectedly in July as public outlays dropped to their lowest level since December 2006 and private spending also sagged, separate data showed.

Weekly jobless claims declined by 12,000 in the latest week, while nonfarm productivity was weaker than previously thought in the second quarter.

Eleven stocks fell for every four that rose on the New York Stock Exchange while on the Nasdaq one stock rose for every four that fell.

Volume was light, with about 7.49 billion shares traded on the New York Stock Exchange, the American Stock Exchange and Nasdaq, below last year's daily average of 8.47 billion. - Reuters


Factory, jobs data temper recession fears

WASHINGTON: Manufacturing unexpectedly grew in August and fewer Americans filed new claims for jobless aid last week despite a slump in confidence that threatened to push the economy back into recession.

Other data on Thursday, Sept 1 showed little signs of consumers hunkering down in response to the collapse in confidence. Major automakers posted sturdy gains in domestic sales in August from a year ago and consumers shopped for an array of goods last week.

The reports were the latest in a series to suggest the economy remained on a slow-growth path and offered hope it would dodge a recession.

"I am breathing a little sigh of relief that the bit of data that we have had over the course of August is weak but not giving the recessionary type of signal," said Stuart Hoffman, chief economist at PNC Financial Services in Pittsburgh.

More light will be shed on the health of the world's largest economy when the government releases its closely watched employment report for August on Friday.

The Institute for Supply Management's index of national factory activity edged down to 50.6 from 50.9 in July, confounding economists' expectations of a fall to 48.5.

A reading below 50 indicates a contraction in the nation's factory sector. Initial claims for state unemployment benefits dropped 12,000 to a 409,000, a separate report from the Labor Department showed.

The drop in claims offered no sign layoffs have picked up due to slumping business and consumer confidence following a steep plunge in the stock market last month and Standard & Poor's decision to strip the nation of its AAA credit rating.

But claims are still above the 400,000 usually associated with a stable labor market and key details of the ISM survey, including production, new orders and employment, were weak.


"The ISM survey is consistent with an economy staggering forward at a weak pace of growth. When the economy tips into recession, the ISM index usually drops into the low 40s," said Nigel Gault, chief U.S. economist at IHS Global Insight in Lexington, Massachusetts.

Data ranging from consumer spending to industrial production have showed some strength in the economy after output barely grew in the first half of the year. Economists now see the odds of a recession down to between 20 and 30 percent from as high as 50 percent last month.

Other reports on Thursday suggested consumers did not pull back in August. U.S. motor vehicle sales rose 7.5 percent from a year ago to an annual rate of 12.1 million units.

Sales at stores open at least a year rose 4.4 percent in August, just shy of the 4.6 percent analysts expected, according to Thomson Reuters.

A strike by about 45,000 Verizon Communications workers likely dampened employment growth last month. Nonfarm payrolls are forecast to have risen 75,000 in August, according to a Reuters poll, after increasing 117,000 in July. The unemployment rate is seen steady at 9.1 percent.

U.S. stocks snapped a four-day rally ahead of the employment report, while Treasury debt prices rose and the dollar firmed.

Economists at Goldman Sachs cut their forecast for August payrolls growth to 25,000 from 50,000, citing weakness in online job postings in recent months.

Lingering weakness in the economy was underscored by nonfarm productivity falling at a 0.7 percent annual rate in the second quarter -- the biggest decline since the fourth quarter of 2008.

Normally, a slowdown in productivity suggests businesses have to add workers to meet production. But against the backdrop of an economy growing at a near stall-speed, it implies businesses might have to cut costs to protect profits.

Businesses could already be facing some cost pressures. Unit labor costs grew at a 3.3 percent rate in the second quarter, a puzzling development given the high unemployment rate.

"In our view, the rise reflects a labor market that has less spare capacity than may be commonly perceived, in which case, rising labor costs are likely to continue," said Troy Davig, an economist at Barclays Capital in New York.

But the pace is still slower than the 6.2 percent rate in the first quarter, indicating wage pressures remain too well contained to stoke a broader rise in inflation. - Reuters

ASIA-Shares look to soft start ahead of data

WELLINGTON: Asian stocks face a weak start on Friday, Sept 2 as Wall Street's four day winning streak came to an end amid uncertainty and caution ahead of key U.S. jobs numbers.

The main U.S. indexes closed between 1 percent and 1.3 percent lower, with banking stocks taking a hit, and investors looking pessimistically towards jobs data due later on Friday.

A decline in the employment component of the Institute for Supply Management's factory activity index heightened worries that August jobs growth will be weaker than feared.

ISM's factory activity index came in only just above the level that indicates growth.

In another discouraging sign, the White House cut its economic growth outlook for the next two years.

Asian stocks listed on Wall Street fell 0.9 percent, world stocks, as measured by the MSCI world equity index, eased 0.5 percent.

Britain's top shares gained 0.5 percent, while European shares were up 0.7 percent, led by gains in defensive stocks.

Japanese markets, which headed above the 9,000 level for the first time two weeks on Thursday, may struggle to hold let alone move higher from that level. Nikkei futures traded in Chicago 55 points below the last closing level in Osaka.

Australian stocks are also seen easing with share price index futures at a 49.5 point discount to the close of the underlying S&P/ASX 200 index. ' Reuters

Thursday, September 1, 2011

S&P lowers MISC credit outlook to negative

KUALA LUMPUR: Standard & Poor's Ratings Services expects MISC BHD []'s credit protection measures to largely remain at their weak June 2011 levels for the next 12 months.

The ratings agency said on Sept 1, said this was due to Malaysia-based energy shipping company's high debt and the downturn in the cyclical shipping industry.

"The company's leverage has increased in the past few years because it expanded and renewed its fleet," said S&P credit analyst Manuel Guerena.

"In addition, MISC faces prevailing weak prices in the liner, petroleum, and chemical tanker spot markets, where we believe asset valuations and cargo volumes will remain volatile."

These factors saw S&P lowering its long-term corporate credit rating on MISC 'BBB+' from 'A-'.

'The outlook is negative,' it said, adding it also lowered its issue rating on the US$700 million 6.125% senior unsecured notes due July 1, 2014, to 'BBB+' from 'A-'. The notes are issued by MISC Capital (L) Ltd. and fully guaranteed by MISC.

S&P said it assessed MISC's stand-alone credit profile at 'bb+'.'' However, the rating was bolstered because of the company's importance to Petroliam Nasional Bhd, which owns 62.7% of MISC. (Petronas; foreign currency A-/Stable/--; local currency A/Stable/--; axAA+/--).

Guerena said this importance has grown beyond MISC's historical role as Petronas' sole liquefied natural gas (LNG) transporter.

As for the rating on MISC, the ratings agency said it reflected (1) the company's growing importance for Petronas, from whom it gets recurring cash flows from long-term charter contracts at its LNG business; (2) contracted revenues from the heavy engineering projects; and (3) and its strengthening position in the offshore and terminals businesses.

However, S&P cautioned the inherent risks of the shipping industry, which was volatile and capital'' intensive, plus existing global overcapacity and MISC's leverage, tempered these strengths.

'The negative outlook reflects our opinion that the severe downturn in the shipping industry (particularly the container segment) could cause MISC's credit protection metrics to deteriorate further.

'The outlook also factors in some uncertainty surrounding the company's capital expenditure plan, which includes a significant expansion in its petroleum tanker fleet, a segment that'' is more volatile than the stable LNG business,' it said.

S&P said it could revise the outlook to stable if MISC reduced its debt or losses at the company's liner operations were lower than it expect, such that the ratio of net operating lease-adjusted (OLA) debt to EBITDA improved to less than 5.0 times within the next year on a sustainable basis.

The ratings agency said by netting the OLA debt with cash in excess of RM1.5 billion, which was a comfortable minimum operating cash reserve MISC needed for its operations.

However, S&P also cautioned that it could lower the rating if: (1) Petronas' ownership in MISC declined or business from the parent declined significantly; (2) the ratio of net OLA debt to EBITDA did not decrease below 5.0 times over the next four quarters, which we believe might happen especially if the liner operation deteriorated further or MISC's capital expenditure further increased its indebtedness.

GOME seeks to buy almost 500 stores from jailed founder

HONG KONG: GOME Electrical Appliances Holding Ltd , China's No.2 appliances distributor, is trying to buy almost 500 stores owned by its jailed founder as it looks beyond a long-running management tussel to capitalise on China's urbanisation drive, Reuters reported on Thursday, Sept 1.

Huang Guangyu, the founder and largest shareholder of GOME, is serving a 14-year sentence for bribery and insider trading.

In addition to owning a one-third stake in GOME, Huang still owns a large number of GOME-branded stores that have not yet been included in the listed GOME, in which U.S. private equity firm Bain Capital also owns a 9.9 percent stake.

Investors have hoped Huang, once named as China's richest man, would sell his own stores into the listed vehicle following his winning of a protracted boardroom fight with GOME's then chairman Chen Xiao.

Huang had previously threatened to take back 493 privately owned stores from GOME when a three-year management agreement expires in December 2012.

"The founder reamains very ambitious. Although he is in adverse situation at the moment, he is still constantly thinking about the development of the company," GOME's new chairman Zhang Dazhong said in an interview with Reuters.

Acting Chief Financial Officer Victor Fang said in the interview that GOME had filed an application with Chinese regulators to buy Huang's expanding network of stores.

"The company has been pushing for the injection. We hope it can be done as soon as possible but we don't know how long it will take to get regulatory approval," Fang said. He gave no details.

An injection of the stores into the listed firm would likely put GOME in a stronger position to tap the rising demand for appliances in China.

"The injection plan is postive for the company's expansion. In the long term, it would reduce the confusion and potential conflict of interest between the listed and non-listed stores," Andrew To, head of research of Emperor Capital Group.


Zhang, an avid tennis player who replaced Chen Xiao earlier this year, said GOME also aimed to add about 260 retail outlets per year as it seeks to ride the country's housing boom.

That would take its store total to 1,600 by 2014, excluding the stores to be bought from Huang, and 59 stores from Beijing Dazhong Electrical Appliances Co Ltd -- of which Zhang was the founder.

Zhang, 62, is a veteran in China's fast-growing home appliance industry who sold his interests in Beijing Dazhong in 2007 for 3.6 billion yuan to GOME.

GOME would focus on the domestic market and currently had no plan to expand overseas, Zhang said.

GOME, which posted a 30.1 percent jump in net profit for the first half of 2011, has said it will focus expansion on second-tier Chinese cities as the country's drive to build more affordable housing over the next five years spurs demand.

"It (China's affordable housing scheme) will lend tremendous support to the businesss of appliance distributors. This is a big pie for us," Zhang said.

But some analysts say China's crackdown on property speculation, now centred on major cities, will limit appliance demand growth. There have been media reports that China is likely to spread its home purchase restriction to more cities.

A GOME store near Beijing's Tiananmen Square was nearly empty on Wednesday, with five costumers wandering the brightly lit ground floor looking at the electronics and domestic brand washing machines and air conditioners. The unairconditioned second floor drew no customers.

A voice over the store's public address system promoted the stores' repair and return policies.

"GOME is a very big company with stores all over the country. I think the quality is more trustworthy and when the camera breaks I know I can come back here and they will fix it for me," a man in his thirties, surnamed Li, told Reuters as he came to Gome to buy a new camera.


GOME, with a market capitalisation of about $7.5 billion, competes with Suning Appliance , China's largest appliance chain, and foreign players such as Best Buy .

GOME faces wider challenges that retailers are grappling with in China's market, including rising labour and operating costs as well as cut-throat competition.

Fang said GOME's rental costs as a percentage of its overall sales stores have been increasing, due in part to opening of new stores, but the firm will try hard to boost its operating margins.

The company's net profit margin was 4.20 percent in the first half, up 0.33 percentage points from a year earlier.

During the interview on Thursday, both Zhang and Bain Capital denied rumours that the U.S. private equity company was planning to sell down its GOME stake.

"We have not engaged any investment bank with regards to potential sale of GOME stock," said Jonathan Zhu, managing director of Bain Capital and a non-executive director of GOME.

"Bain is pleased with GOME's performance and intends to remain a significant shareholder in the foreseeable future," he said, adding that Bain typically holds stakes in a company for at least five years."

Bain was brought in by Chen Xiao in June 2009 to invest about $420 million in then cash-strapped GOME via convertible bonds.

Chen was formerly the head of China Paradise Electronics Retail Ltd, which was bought by Gome for about $680 million in 2006, creating a retail giant then with about $8 billion in sales and a 10 percent shares of the Chinese market.

Shares of GOME ended up 0.3 percent on Thursday at HK$3.35, after hitting a day high of HK$3.59. - Reuters

GLOBAL ECONOMY-Asia's factories quieter as exports slip

SINGAPORE: Slumping export demand slowed factory activity in some of Asia's biggest economies in August, although China fared better thanks to solid domestic growth, a series of surveys released on Thursday, Sept 1 showed.

The Purchasing Managers Indexes showed manufacturing contracted in South Korea and Taiwan as new export orders fell sharply. China's official PMI increased slightly, the first rise since March, but it also reflected the effects of slowing demand in the United States and Europe.

China's overall PMI rose to 50.9 in August from 50.7 in July, according to government data, a touch weaker than economists polled by Reuters had predicted. The new export orders index dropped to 48.3 from July's 50.4.

Beijing pinned the blame for the sharp fall in export orders at least partly on the debt crises in advanced economies. The National Bureau of Statistics said the export sector was "facing challenges".

Taiwan's PMI dropped to 45.2 in August, the lowest reading since January 2009, which was in the middle of the global financial crisis that crushed world trade. A reading below 50 indicates contraction.

"The West's deteriorating growth outlook is becoming an increasingly heavy burden to bear," said Donna Kwok, an economist with HSBC, which sponsors PMI reports in many countries including Taiwan.

HSBC's PMI figure for China showed factory activity contracted for a second consecutive month, although the decline was less pronounced than it was in July. HSBC's survey relies more heavily on private companies rather than the large state-owned enterprises that dominate the government's PMI report.

Weak economic growth in the United States and Europe has revived worries they will slip back into recession, which would deal a heavy blow to Asia's export-driven economies. Data due later on Thursday is expected to show manufacturing contracted in the euro zone and the United States in August.

Most advanced economies have already cut interest rates to near zero, and with government finances constrained, policymakers have limited options for spurring stronger growth.

That leaves the big emerging economies as the best hope for propping up global growth. They may not be up to the task.


Credit Suisse cut its growth forecasts on Thursday for most Asian economies outside of Japan.

"Asian growth is set to slow more sharply than most expect over the coming months," Credit Suisse economist Robert Prior-Wandesforde wrote in a note to clients.

China is battling inflation at a three-year high, and Premier Wen Jiabao said on Thursday that Beijing would try to engineer a bigger drop in consumer prices in the second half of the year. Chinese officials have said repeatedly that fighting inflation is the top priority despite sluggish growth abroad.

Thursday's data showed input prices rose in China last month, suggesting price pressures remain acute.

Brazil unexpectedly lowered interest rates on Wednesday because of concern about a global economic slowdown.

China isn't the only Asian economy struggling to contain inflation. In South Korea, the consumer price index hit a three-year high, up 5.3 percent in August from a year earlier, marking the eighth consecutive month that inflation has exceeded the Bank of Korea's target.

Thailand's CPI was also higher than expected.

This puts Asia's central bankers in a bind. Hot inflation points to more interest rate hikes, but the darkening global outlook argues for a policy pause.

China provided a bit of a counterweight to the global gloom. It has overtaken the United States and Europe as the top export destination for some Asian countries, so its rapid growth helps to cushion the export decline.

That also helped China's factories outperform those in many neighbouring countries. Although export orders fell sharply, overall new orders rose, indicating that domestic business continued to grow. - Reuters