The Week Ahead: Spotlight on fuel subsidy, toll rates and 1MDB

This article first appeared in The Edge Malaysia Weekly, on May 21, 2018 - May 27, 2018.
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Investors will continue to keep close tabs on local developments this week, with a number of hot issues such as fuel subsidies and toll charges expected to be discussed by the country’s Council of Eminent Persons.

The council’s chairperson, Tun Daim Zainuddin, said in a press conference last Friday evening that it would also discuss 1Malaysia Development Bhd (1MDB), the Goods and Services Tax and Sales and Services Tax, East Coast Rail Line project, Federal Land Development Authority, Felcra Bhd and Felda Global Ventures Holdings Bhd, which means there is likely to be newsflow on these issues.

Daim stressed that the council’s role was only to advice the new government on economic and financial matters, and that it was up to the latter to decide whether to act on its advice. He revealed that the council has already held 40 meetings and met 50 individuals since it was set up on May 12.

Any announcement on toll charges this week may see highway-related companies such as Lingkaran Trans Kota Holdings Bhd, WCE Holdings Bhd and Gamuda Bhd react in the stock market. All three saw declines in share prices last Friday, ahead of the expected announcement.

RAM Ratings, noting that the toll-road sector was one of the earliest and largest sectors in Malaysia to have tapped the debt capital markets, expects bonds and sukuk issued by toll-road concessionaires to be affected by the new administration’s intention to abolish highway tolls.

As at May 15, the sector comprised 23 issuers, with total issuance outstanding (excluding loan stocks) at a sizeable RM52.83 billion. These are largely held by local institutions and government-linked pension funds.

“Pending further details, RAM believes the government will balance its plan against any implications for the bond market,” the ratings agency says in a press release last Friday.

Newly minted Prime Minister Tun Dr Mahathir Mohamad, who gave multiple press conferences last week, expects his updated 15-member cabinet — part of an eventual 25 — to be sworn in at the Istana Negara on May 21. He will be watched for clues on his other cabinet picks and his stance on a host of hot topics.

Former prime minister Datuk Seri

Najib Razak is expected to be present at the Malaysian Anti-Corruption Commission on Tuesday to facilitate investigations into 1MDB subsidiary, SRC International Sdn Bhd.

Meanwhile, on the macroeconomic front, Bank Negara Malaysia is expected to release the inflation rate — as measured by the Consumer Price Index — for April on Wednesday. A Bloomberg survey of five economists sees the median for annual growth at 1.6%. CPI rose 1.3% year on year in March, its slowest pace since last July.

In the stock market, MyEG Services Bhd and George Kent (M) Bhd will continue to be closely watched after investors dumped their shares last week on the belief that the companies’ fortunes were linked to the previous government’s. The Barisan Nasional coalition suffered an unprecedented defeat in the May 9 general election.

The two companies saw a total of RM7.4 billion wiped out from their market capitalisation in the week to Thursday. The shares, however, rebounded slightly on Friday. MyEG closed at 92.5 sen, two sen higher than the previous day, while George Kent closed six sen higher at RM1.57.

Key economic data releases to watch out for this week include Thailand’s first-quarter gross domestic product (GDP) growth on Monday. A Reuters poll of 12 economists sees the median for quarterly growth at a seasonally adjusted 1.05% — that would make it the fastest pace in three quarters. On an annual basis, growth for Asean’s second largest economy was seen at 4%.

Elsewhere, Singapore is expected to announce its latest estimate for 1Q GDP. Last month, its Ministry of Trade and Industry estimated that GDP for the quarter grew 4.3% year on year, higher than the 3.6% growth in the fourth quarter of last year.

China is expected to be quiet in terms of macroeconomic data releases this week. On Tuesday, Hong Kong and South Korea’s stock markets will close for Buddha’s birthday.

There will likely be follow-up news on China-US trade talks in Washington late last week. Last Friday, China’s foreign ministry denied new reports that it offered to cut its trade surplus with the US by US$200 billion.

On the corporate front at home, Malaysian Resources Corp Bhd, a construction and property development group that is also a toll concessionaire, will hold its annual general meeting (AGM) on Monday. Shareholders will likely be keen to hear how, if at all, it might be affected by the recent change of government.

Other AGMs this week include that of Allianz Malaysia Bhd (Tuesday), Axiata Group Bhd (Wednesday), OSK Holdings Bhd, UMW Holdings Bhd and Aeon Co (M) Bhd (Thursday).

According to Bloomberg data, Axiata is expected to release its first-quarter results on Tuesday, while Tenaga Nasional Bhd will announce its 1Q results on Friday.

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