The Week Ahead: POC2018, China’s economic targets in the spotlight

This article first appeared in The Edge Malaysia Weekly, on March 5, 2018 - March 11, 2018.
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MALAYSIA’s annual palm oil conference and news flow on China’s economic targets and monetary policy direction for this year take centre stage this week, even as pundits continue to prepare for the upcoming 14th general election. Last Thursday, hundreds of Federal Land Development Authority (FELDA) settlers reportedly turned up to listen to what Tun Dr Mahathir Mohamad had to say during his visit to Pekan, Prime Minister Datuk Seri Najib Razak’s constituency.

China’s National People’s Congress begins on Monday (March 5) in Beijing while on Tuesday and Wednesday, Bursa Malaysia will be hosting the Palm and Lauric Oils Price Outlook Conference & Exhibition 2018 (POC2018), a key annual affair for the industry as well as those keen on listening to insiders and global experts talk about developments that will impact the outlook and pricing of the palm and lauric oils market.

The main economic data release in Kuala Lumpur this week is exports and trade balance for January on Monday. Export growth slowed to 4.7% last December from 14.4% in November and 18.7% in October but RAM Ratings expects growth to have risen to 8.4% in January this year on upbeat global demand.

Bank Negara Malaysia’s monetary policy committee is expected to keep the overnight policy rate unchanged at 3.25% on Wednesday after the 25-basis-point increase in January. It is worth noting that the real (inflation adjusted) interest rate is back on positive ground again, with the Consumer Price Index (CPI) falling to 2.7% in January from 3.5% the month before. Malaysia projects inflation to be between 2.5% and 3.5% this year, below the average of 3.7% last year.

The central bank will also release its reserves figures for end-February on March 7. As at mid-February, Bank Negara’s reserves stood at US$103.6 billion, down 0.1% from US$103.7 billion at end-January — its first fortnightly decline since March 15 last year. Nonetheless, the position remains adequate at 1.1 times short-term external debt and 7.1 months of retained imports.

Key rate decisions will be announced by the Reserve Bank of Australia (March 6), Bank of Canada (March 7), the European Central Bank (March 8) and Bank of Japan (March 9). On March 8, the US Federal Reserve will release its Beige Book.

Other regional and global economic data releases this week include the eurozone’s composite Purchasing Managers’ Index and services PMI as well as the Institute for Supply Management’s non-manufacturing index for the US on March 5, the Philippines’ CPI (March 6), Switzerland’s Harmonised Index of Consumer Prices (March 6), Taiwan’s CPI and exports (March 7), the US ADP employment survey or the ADP jobs report, which tracks non-farm private sector employment data (March 7), Thailand’s consumer confidence (March 8), the eurozone’s final reading of fourth-quarter gross domestic product data (March 8), China’s CPI and Producer Price Index and the US’ latest unemployment and payrolls data.

On the Malaysian corporate front, MKH Bhd, Sunsuria Bhd and Sentoria Group Bhd are having their respective annual general meetings (AGMs) on March 8. Companies holding their extraordinary general meetings (EGMs) this week include Top Glove Corp Bhd (March 8), GuocoLand (M) Bhd (March 8), LCTH Corp Bhd (March 8) and K-Star Sports Ltd (March 9).

Top Glove is seeking shareholders’ approval to buy surgical glove maker Aspion Sdn Bhd from Singapore-based Adventa Capital Pte Ltd for RM1.37 billion in cash (RM1.23 billion) and new shares (RM137 million via 20.5 million new shares at RM6.6813 each) — a deal the company said would make Top Glove the largest surgical glove exporter in Malaysia and a major global surgical glove maker. The purchase consideration represents 16.93 times the 2018 target core profit after tax of RM80.9 million, which comes with a vendor guarantee.

The Hong Leong Group’s GuocoLand Malaysia wants shareholders to approve its 70%-owned subsidiary’s proposed sale of PD Resort Sdn Bhd for RM116.01 million and 70% of JB Parade Sdn Bhd for RM107.88 million — a deal that essentially shifts the ownership of Thistle Port Dickson Resort and Thistle Johor Bahru hotels to Singapore-listed GuocoLand Ltd, the holding company of GuocoLand Malaysia. The latter will receive RM154.11 million gross proceeds for working capital.

Independent adviser Inter-Pacific Securities Sdn Bhd said the proposed disposals are “fair and reasonable” and are not detrimental to the non-interested GuocoLand Malaysia shareholders. It recommends they “vote in favour”.

LCTH wants its shareholders to approve a proposed selective capital reduction and repayment exercise that will result in its privatisation by Fu Yu Investment Pte Ltd, which already controls 70.64% of the company (it controls 71.84% together with parties acting in concert — LCTH executive director Tam Wai, executive vice-chairman Ho Nee Kit, executive director Ching Heng Yang, managing director Hew Lien Lee and shareholder Tan Yew Beng). Entitled shareholders will receive 58 sen for each LCTH share.

Independent adviser Mercury Securities Sdn Bhd said the proposed cash amount of 58 sen is “not fair” as it is 9.38% below the 64 sen estimated value of each LCTH share. However, it deemed the offer “reasonable” as LCTH shares are illiquid and the cash amount represents a 4.37% to 31.82% premium over the one-year volume-weighted average price.

China-based K-Star wants approval to place out a 30% stake to its substantial shareholder Datin Stacey Tan Siew Ching (also JAG Bhd’s executive chairperson) and third-party investors to raise RM5.71 million for expansion and working capital. K-Star is also seeking approval for a two-for-five free warrant (after placement with an eight sen exercise price) and proposed diversification to include construction and related activities.

 

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