PP16795/03/2013(031743) Dec-16

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1 ket Insight Wednesday, 13 December, 2017 Dec-16 Jan-17 Feb Apr Jun Aug Oct Dec-17 Research Team PP16795/03/2013(031743) Reports Published Economics Malaysia economy: IPI growth eases in October; manufacturing sales remain on double-digit pace Sector Report: MPOB Monthly Statistics (Neutral): Closing stocks surged 16% mom to 2.56m tonnes Company Update: Kuala Lumpur Kepong: Proposed acquisition of Elemetis Specialities. TP: RM26.46 (Hold) Corporate News Economic News Kuala Lumpur Kepong plans Elementis Specialties buy Pos Laju to rake in RM700m revenue in 2017 Fajarbaru gets RM22m contract to renovate Pos Malaysia s KLIA parcel sortation centre Scomi Energy minority shareholders advised to accept merger offer Anzo gets RM28.91m sub-contract to build office building in Perak UEM Sunrise buys acre land for RM700m GDV project October industrial output expands at slower pace Decline in Malaysia sovereign sukuk issuance a temporary 'blip' UK inflation hits highest in nearly 6 years, peak seen soon Hong Kong homebuyers to face worsening affordability crisis Cambodia's garment export growth expected to slow next year Bursa Malaysia Close Chg +/- Chg % YTD Chg (%) FBMKLCI 1, FBMEMAS 12, FBM100 12, FBMEMAS Shariah 12, FBM Hijrah Shariah 14, Volume (m) 2, Value (MYR m) 2, KLCI Performance KLCI Year-End Target: 1,790 points Regional Indices Commodities (Last Close) Close Chg +/- Chg % YTD Chg (%) Close Chg +/- Chg % DJIA 24, Brent Crude (USD/bbl) NASDAQ 6, WTI Crude (USD/bbl) S&P 500 2, CPO (RM/MT) 2, FTSE 100 7, Gold (USD/ounce) 1, Nikkei , Latex (sen/kg) HSI 28, Soybean Oil SHCOMP 3, KOSPI 2, Forex TWSE 10, (per USD) BIMB (YE Forecast) Close Chg +/- Chg % STI 3, MYR JCI 6, JPY SET 1, EUR PSEi 8, SGD

2 ket Insight Major Rates Daily Participation % Participation Bought Sold Net KLIBOR 3-mth 3.43 (%) (MYR m) (MYR m) (MYR m) KLIBOR 6-mth 3.56 Local Insti , , KLIBOR 12-mth 3.63 Local Retail yr MGS 3.64 Foreign yr MGS 3.97 Total Performance of BIMB Stock Coverage Top Gainers Source: Bank Negara Malaysia Top Losers Source: The Sun, BIMB Securities Close Chg +/- Chg % Close Chg +/- Chg % DNeX Malakoff Padini Ikhmas Jaya Westports Matrix Concepts Hibiscus MCT GHL System MyEG

3 Jan'11 Jan'12 Jan'13 Jan'14 Jan'15 Jan'16 Jan'17 ket Insight REPORTS PUBLISHED Malaysia Economy Economics IPI growth eases in October; manufacturing sales remain on double-digit pace tember IPI rose by 3.4% yoy Deceleration in manufacturing and mining production Manufacturing sales growth remains on double digit pace Productivity grew by 8.5% yoy in October Moderate IPI growth in 4Q17 Industrial production was moderated in October Malaysia s industrial production index rose by 3.4% yoy in October, following 4.7% rise in the previous month. The IPI growth was at the lowest since tember 2016 (3.1%). Similar downward trends were seen in manufacturing (Oct: 4.2%, : 5.7%, Aug: 7.6%) and mining (Oct: 0.8%, : 2.1%, Aug: 5.3%). In contrast, electricity sector improved to 4.6% in October from 2.2% posted in the prior month. On seasonally adjusted monthly basis, the IPI rallied to 2.7% in October after registered a negative growth for three consecutive months (: -0.1%, Aug: -0.2%, : -0.3%). The monthly growth was supported by all main sectors as the production of mining (Oct: 5.3%, : -1.7%) and electricity (Oct: 6.0%, : -6.5%) rebounded in October whilst manufacturing sector increased further (Oct: 1.6%, : 1.0%). Industrial production index for the period of January to October 2017 grew by 4.7% as compared to the same period of the previous year. The growth was contributed by mainly the manufacturing sector which grew by +6.1%, electricity sector +2.3% and mining sector +1.0%. Chart 1: Industrial Production (YoY%) IPI (All) Manufacturing Mining Electricity Source: Department of Statistics, BIMB Securities 3

4 ket Insight CORPORATE NEWS Kuala Lumpur Kepong plans Elementis Specialties buy KLK plans to buy Elementis B.V.'s entire equity interest in Elementis Specialties Netherlands B.V. (ESN) for 39m (RM187.2m) to grow KLK's downstream specialty chemical business. KLK, Elementis B.V. and ESN had executed a signing protocol to obtain the advice of the Dutch Works Council on the proposed acquisition of 3,404 shares in ESN. ESN comes with a large established customer base and is expected to generate overall benefits to KLK's chemical business. The 39m purchase price is based on ESN's enterprise value. KLK will finance the acquisition with its cash reserves and bank borrowings. (Source: The Edge) Pos Laju to rake in RM700m revenue in 2017 Pos Malaysia expects its courier arm, Pos Laju to contribute a revenue of about RM700m this year and sustain a growth of 20% to 21% next year. Pos Laju had been experiencing a robust growth of about 20% in its courier services yoy for the past 3 years, in line with the country s e-commerce expansion. Pos Laju had become the group s largest revenue contributor and this was expected to continue, driven by e-commerce growth, even though it was still relatively low, compared with that of other countries 20% to 25% yearly. Moving forward, Pos Malaysia would continue to improve it services, including adding more touch points to make it more convenient for customers to reach the services. (Source: The Edge) Fajarbaru gets RM22m contract to renovate Pos Malaysia s KLIA parcel sortation centre Fajarbaru secured a RM22.05m contract from Pos Malaysia to renovate the latter s Integrated Parcel Sortation Centre at Pos Malaysia International Hub at Kuala Lumpur International Airport. Fajarbaru Builder entered into a contract for renovation and fitting-out works with Pos Malaysia for the expansion, renovation and other associated works on the said parcel centre. The contract, to be completed in 8 months, is expected to contribute to the group s earnings for the FY18 and FY19. (Source: The Edge) Scomi Energy minority shareholders advised to accept merger offer Minority shareholders of Scomi Energy have been advised to accept its proposed merger with 65.65% shareholder Scomi Group Bhd and associate Scomi Engineering Bhd. The offer price is "fair" as the fair value and market price of Scomi shares under Scenario 1, post consolidation with Scomi Energy and Scomi Engineering is higher than the price of Scomi Energy shares. The same applies if Scenario 2 occurs that Scomi Engineering opts out of the merger proposal. Scomi Energy shareholders were offered 3 Scomi shares for 5 Scomi Energy shares held together with 1-for-3 free warrants for an implied offer price of 13.4 sen, which is a discount to its fair value of between 28.4 sen and 29.7 sen. Scomi Energy has a net asset value of 28 sen as at 2QFY18. (Source: The Edge) Anzo gets RM28.91m sub-contract to build office building in Perak Anzo s construction unit has been awarded a RM28.91m sub-contract for the construction of a 14-storey new office building in Jalan Hospital Bandar, Ipoh, Perak. The job was awarded by QuicBuild System, a private limited company incorporated in Malaysia that is principally involved in building construction and development. Anzo Construction SB (ACSB) has accepted the LoA to be appointed as sub-contractor for supply materials, labour, tools equipment, workmanship, and machineries for the execution of the said building and infrastructure works. The contract duration is for 19 months, to be completed on June 14, The group intends to fund the contract via internal funds and/or external borrowings. (Source: The Edge) UEM Sunrise buys acre land for RM700m GDV project UEM Sunrise is acquiring a acre land in Taman Equine, Seri Kembangan, for residential units with an estimated gross development value in excess of RM700m. Sunrise Alliance SB had inked a sale and purchase agreement with Kemaris Residences SB to buy the land for RM109.5m. The development order has been approved for the project comprising 924 residential units, which is targeted at upper-mid market purchasers. Taman Equine is located about 18km to the south of Kuala Lumpur city centre, and is easily accessible via Maju Expressway, Lebuhraya Damansara Puchong and South Klang Valley Expressway, said the company, adding that the Equine Park MRT2 Station, which is currently under construction, is located 1.3km to the south of the land. (Source: The Edge) 4

5 ket Insight ECONOMIC NEWS October industrial output expands at slower pace Malaysia's IPI expanded at a slower-than-expected pace of 3.4% compared with a Bloomberg survey of a 4.1% due to slower manufacturing growth. The increase in October from a year ago was driven by positive growth in manufacturing (4.2%), mining (0.8%) and electricity (4.6%). As for the manufacturing sector, output grew at a slower pace of 4.2% in October 2017 after a 5.7% growth in tember. The major sub-sectors which contributed to the increase in October 2017 were: electrical and electronic products (5.9%); petroleum, chemical, rubber and plastic products (2.1%) and food, beverages and tobacco products (7.0%). The electricity sector output increased by 4.6% in October 2017 on yearly basis. (Source: StarBiz) Decline in Malaysia sovereign sukuk issuance a temporary 'blip' The 19% yoy decline in Malaysia's long-term sovereign sukuk issuance to USD7.7bn in the 1 st 8-month of 2017 is just a temporary "blip", and was due to the fact that there were not many major infrastructure projects financed by sukuk during the period. Unlike Indonesia, which is fervently building roads, highways, ports and airports, Malaysia does not have many major infrastructure projects. According to recent report by Moody's Investors Service, Malaysia saw a fall in sovereign sukuk issuance, although the country remains the largest Islamic issuer with an estimated 43% of total sovereign sukuk outstanding in Indonesia, on the other hand, saw an annual sukuk yoy growth of 30% in 2016, from just under 10% in (Source: The Edge) UK inflation hits highest in nearly 6 years, peak seen soon British inflation unexpectedly rose to its highest level in nearly 6 years in ember, tightening the post-brexit vote squeeze on households whose spending is the main driver of the country's economy. Consumer price inflation hit an annual rate of 3.1% in ember, pushed up by air fares, computer games and the price of chocolate, official data showed on Tuesday, reflecting the impact of the pound's plunge after last year's vote to leave the EU. There were also signs that factories were under renewed price pressure as global oil prices rose. But most economists said they thought the surge in prices for consumers was peaking. (Source: Reuters) Hong Kong homebuyers to face worsening affordability crisis The dream of owning a home in Hong Kong will become even less attainable for those seeking to get on the housing ladder next year, as prices in the city are forecast to rise 10% to 20%, according to predictions by the city s two major property consultants. Cushman and Wakefield in its property market review and outlook for 2018 forecast a 10% growth in Hong Kong home prices. Home prices in Hong Kong rose 11% this year, with the biggest rise seen in nano flats and luxury homes. Nano flats are usually less than 200 sq ft and cost about HK$4m (RM2.09m). Hong Kong s residential prices have gone up 75.9% compared to the market peak in 1997 after the city island was handed back to China. (Source: The Edge) Cambodia's garment export growth expected to slow next year Concerns about the impact of next year's election and competition from lower-cost or more efficient Asian rivals will slow the growth of Cambodia's garment industry next year. The Garment Manufacturers Association in Cambodia, representing 600 factories that employ around 700,000 people expected export growth of 3% to 4% next year, from a rate of 8% in the first 9 months of It did not see any major risk that the EU would cut trade preferences, a threat raised by the bloc after the main opposition party was dissolved last month at the request of Prime Minister Hun Sen's government. (Source: Reuters) 5

6 ket Insight ECONOMIC CALENDAR Date Time Country Event Period Survey Actual Prior Revised 12/13/ :50 JN Core Machine Orders MoM Oct 2.90% % -- 12/13/ :50 JN Core Machine Orders YoY Oct -3.40% % -- 12/13/ :00 SP House transactions YoY Oct % -- 12/13/ :00 IT Industrial Production NSA YoY Oct 0.80% % -- 12/13/ :00 IT Industrial Production WDA YoY Oct 3.40% % -- 12/13/ :00 IT Industrial Production MoM Oct 0.70% % -- 12/13/ :00 EC Industrial Production SA MoM Oct 0.00% % -- 12/13/ :00 EC Industrial Production WDA YoY Oct 3.20% % -- 12/13/ :30 US CPI MoM 0.40% % -- 12/13/ :30 US CPI Ex Food and Energy MoM 0.20% % -- 12/13/ :30 US CPI YoY 2.20% % -- 12/13/ :30 US CPI Ex Food and Energy YoY 1.80% % -- 12/13/ :30 US CPI Core Index SA /13/ :30 US CPI Index NSA /13/ :30 US Real Avg Weekly Earnings YoY % 0.30% 12/13/ :30 US Real Avg Hourly Earning YoY % 0.20% 12/14/ :00 US FOMC Rate Decision (Upper Bound) Dec % % -- 12/14/ :00 US FOMC Rate Decision (Lower Bound) Dec % % -- 12/14/ :30 JN Nikkei Japan PMI Mfg Dec P /14/ :00 CH Industrial Production YoY 6.10% % -- 12/14/ :00 CH Industrial Production YTD YoY 6.60% % -- 12/14/ :30 JN Industrial Production MoM Oct F % -- 12/14/ :30 JN Industrial Production YoY Oct F % -- 12/14/ :30 JN Capacity Utilization MoM Oct % -- 12/14/ :30 NE Trade Balance Oct b -- 12/14/ :00 LN Current Account Balance Oct m -- 12/14/ :00 CZ Current Account Monthly CZK Oct 3.20b b -- 12/14/ :00 UK Bank of England Bank Rate Dec % % -- 12/14/ :00 UK BOE Asset Purchase Target Dec 435b b -- 12/14/ :00 UK BOE Corporate Bond Target Dec 10b -- 10b -- 12/14/ :45 EC ECB Main Refinancing Rate Dec % % -- 12/14/ :45 EC ECB ginal Lending Facility Dec % % -- 12/14/ :45 EC ECB Deposit Facility Rate Dec % % -- 12/14/ :00 PD Current Account Balance Oct 210m m -- 12/14/ :00 PD Trade Balance Oct 480m m -- 12/14/ :00 PD Exports Oct 18100m m -- 12/14/ :00 PD Imports Oct 17400m m -- 12/14/ :30 US Import Price Index MoM 0.70% % -- 12/14/ :30 US Import Price Index ex Petroleum MoM 0.10% % -- 12/14/ :30 US Import Price Index YoY 3.20% % -- 12/14/ :30 US Export Price Index MoM 0.30% % -- 12/14/ :30 US Export Price Index YoY % -- 12/14/ :45 US kit US Manufacturing PMI Dec P /14/ :45 US kit US Services PMI Dec P /14/ :45 US kit US Composite PMI Dec P /15/ :00 FI Current Account Balance Oct b -- 12/15/ :00 EC Trade Balance SA Oct 24.3b b -- 12/15/ :00 EC Trade Balance NSA Oct b -- 12/15/ :00 IR Trade Balance Oct m -- 12/15/ :00 IR Current Account Balance 3Q m -- 12/15/ :00 BE Trade Balance Oct m

7 ket Insight DEFINITION OF RATINGS BIMB Securities uses the following rating system: STOCK RECOMMENDATION BUY Total return (price appreciation plus dividend yield) is expected to exceed 10 in the next 12 months. TRADING BUY Share price may exceed 15 over the next 3 months, however longer-term outlook remains uncertain. HOLD Share price may fall within the range of +/- 10 over the next 12 months TAKE PROFIT Target price has been attained. Fundamentals remain intact. Look to accumulate at lower levels. TRADING SELL Share price may fall by more than 15 in the next 3 months. SELL Share price may fall by more than 10 over the next 12 months. NOT RATED Stock is not within regular research coverage. SECTOR RECOMMENDATION OVERWEIGHT The Industry as defined by the analyst s coverage universe, is expected to outperform the relevant primary market index over the next 12 months NEUTRAL The Industry as defined by the analyst s coverage universe, is expected to perform in line with the relevant primary market index over the next 12 months UNDERWEIGHT The Industry as defined by the analyst s coverage universe, is expected to underperform the relevant primary market index over the next 12 months Applicability of ratings The respective analyst maintains a coverage universe of stocks, the list of which may be adjusted according to needs. Investment ratings are only applicable to the stocks which form part of the coverage universe. Reports on companies which are not part of the coverage do not carry investment ratings as we do not actively follow developments in these companies. Disclaimer The investments discussed or recommended in this report may not be suitable for all investors. This report has been prepared for information purposes only and is not an offer to sell or a solicitation to buy any securities. The directors and employees of BIMB Securities Sdn may from time to time have a position in or either the securities mentioned herein. Members of the BIMB and their affiliates may provide services to any company and affiliates of such companies whose securities are mentioned herein. The information herein was obtained or derived from sources that we believe are reliable, but while all reasonable care has been taken to ensure that stated facts are accurate and opinions fair and reasonable, we do not represent that it is accurate or complete and it should not be relied upon as such. No liability can be accepted for any loss that may arise from the use of this report. All opinions and estimates included in this report constitute our judgements as of this date and are subject to change without notice. BIMB Securities Sdn accepts no liability for any direct, indirect or consequential loss arising from use of this report. Printed and published by BIMB SECURITIES SB ( X) A Participating Organisation of Bursa Malaysia Securities Level 32, Menara Multi Purpose, Capital Square, No. 8 Jalan Munshi Abdullah, Kuala Lumpur Tel: Fax: Azharuddin Nordin Head of Research 7