Published January 2, 2009

Investors group sees KL stocks in trading band

MIA's 750-1,000 point range for this year is among more bullish projections

By PAULINE NG
IN KUALA LUMPUR

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INFLUENCED by external economic factors and domestic politics, Malaysia's stock market is likely to swing in a 250-point band this year, says the Malaysian Investors' Association (MIA).

What's ahead? Low commodity prices have hurt the market, after having been a mainstay for two years

It sees the Kuala Lumpur Composite Index (KLCI) - now hovering around 880 points - trading between 750 and 1,000.

Just as OSK Investment Bank Research has forecast a 2009 year-end close of 1,020 for the index, MIA's 1,000-point projection - 14 per cent up from the current level - is among the more bullish.

Some broking houses, such as Hwang DBS-Vickers, see the index ending 2009 closer to 900 points.

And one house, which sees the market weighed down by unprecedented global financial ruin, expects it to shrink further in 2009.

'We believe the market will struggle for any meaningful recovery,' Alliance Research said in a recent report.

It expects the KLCI to finish this year 12 per cent lower around 800 points, even though it believes the peak of the economic crisis 'should have passed by now' after global rescue measures by governments and central banks.

Alliance does not expect an economic recovery this year. Instead, it sees Wall Street leading global markets further south.

Downside risks to earnings, especially in the cyclical plantation and property sectors, cannot be discounted, it says. And banks face thinning margins and higher provisions.

'In 2009, most sectors except gaming, food and rubber gloves, will register negative earnings growth,' according to Alliance.

But while it sees further downside for shares, it believes the risk of a sharp plunge is minimal, especially as Malaysia is in generally strong financial shape with overall net gearing below 20 per cent.

MIA president PHS Lim says low commodity prices - palm oil has fallen from RM4,500 a tonne to about RM1,200 - have hurt the local market, after having been a mainstay for two years.

The plantation sector, which accounts for 15 per cent of the bourse's capitalisation, has suffered a major drubbing after the price of crude oil collapsed.

The collapse in palm oil prices, coupled with domestic political uncertainty, has sent investors to the sidelines. But it is the US that holds the key to the economic recovery.

MIA reckons US unemployment could exceed 9 per cent in the first quarter of this year, dragging consumption lower and prolonging the start of a global recovery to Q3.

On the flip-side, this will give investors ample opportunity to bargain-hunt for blue chip firms at reasonable prices. And as MIA reminds pessimists: 'All big meltdowns come to pass.'

Published January 2, 2009

Malaysia may spend more to boost economy in 2009

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(KUALA LUMPUR) Malaysia's prime minister-in- waiting says he may use another fiscal package to stimulate the sagging economy, warning that the global financial meltdown could result in job losses at home in 2009.

'What we are facing are the effects of a global meltdown which will impact on our economy adversely,' Deputy Prime Minister Najib Razak said in an interview published in the latest issue of The Edge business weekly.

In November, the government unveiled a plan to inject RM7 billion (S$2.9 billion) into the economy, which is forecast to grow by 3.5 per cent in 2009, down from a target of 5.4 per cent. But some economists have warned growth could fall below 2 per cent.

Mr Najib, who is scheduled to take over as prime minister in March, said he is not averse to another stimulus package to boost spending.

'My priority is that I really want to save the rakyat (people) from having to go through hardships if the real economy is impacted,' he said in the interview.

In a separate interview published on Wednesday in the New Straits Times daily, Malaysia's central bank chief Zeti Akhtar Aziz also indicated the government may need to spend more.

'If conditions in the major economies worsen, then further stimulus will definitely be necessary to prevent our economy from slipping into negative territory,' Ms Zeti said.

Further spending may widen the government's budget deficit - targeted at 4.8 per cent of gross domestic product next year - but it will only be temporary, she said.

Mr Najib said a deficit of more than 5 per cent was tolerable as long it was for only one or two years.

He said that as a result of the global economic slowdown, Malaysia may have to face businesses 'downsizing and retrenchment of workers in the private sector'. 'But there is a saving grace - inflation is expected to moderate next year' because of falling fuel prices, he said.

Inflation could be in the region of about 4 per cent or less in 2009, according to Mr Najib. Inflation in July and August hit its highest level in nearly three decades at 8.5 per cent.

Mr Najib also said foreign investors were beginning to see political stability returning after a period of uncertainty following the March 2008 general elections when the ruling coalition suffered a big drop in its majority.

The poor result triggered a virtual revolt against the leadership of Prime Minister Abdullah Ahmad Badawi, who agreed to step down in favour of Mr Najib in March. -- AP

Published January 1, 2009

Cosco shares dive on FY08 profit warning

It falls 7.8% to 95cents, less than a fifth of its year-high price of $5.87 in January

By VINCENT WEE

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COSCO Corporation (Singapore)'s warning of lower 2008 profits - which it issued on the penultimate day of a year in which Chinese shipbuilders have gone from hero to zero - sent its shares diving yesterday.

The stock fell eight cents or 7.8 per cent to close at 95 cents, less than one-fifth of its year-high of $5.87 in January. Almost 30 million shares changed hands, making it the most heavily traded for the day.

Tuesday's announcement was the latest in a relentless spate of woes the counter has gone through since it first dropped the bombshell in April that it would not be proceeding with a US$202 million semisub contract for Red Flag AS. The share price tanked 15 per cent to bring Cosco shares below the $3 level for the first time in 2008 and it has been looking bad since.

At the time, analysts still kept their faith with the China-based ship and rig builder, maintaining their ratings, as the belief was that it was a one-off case and Cosco had no other contracts with the client. In addition, profits were still coming in, with first quarter net profit doubling to $84 million.

The next problem Cosco faced was on the public relations front when even with the prospect of good news from a contract potentially worth US$2.4 billion, the company faced flak ironically because of its new policy in the wake of the lashback from the Red Flag deal. Cosco had instituted a new policy of only announcing contracts after deposits have been received. But this raised investors' concern over the lack of timely disclosure and significant shareholder transactions.

These concerns were exacerbated and investors further punished Cosco for the lack of details surrounding long-time president Ji Hai Sheng's surprise retirement in August. Fears of trouble at the top sent the stock lower and entrenched it at the poorer end of the $2 range.

The counter faced more resistance in October as it became clearer that the profit momentum was slowing down - third quarter net profit rose just 17 per cent from the year before. Analyst reports had started to turn negative at the beginning of the month, with Credit Suisse slashing target price by more than half to 55 cents.

Sentiment was hit by the worsening dry bulk freight rate index (Cosco has a dry bulk carrier business) and worries that it would struggle to deliver orders this year. Cosco shares' fall to the $1 level in mid-October heralded its slide into the long dark winter of penny stock status which it has stayed in for much of the last quarter.

With the cancellation of two out of an order of five dry bulk carriers at the beginning of December, Tuesday's profit warning should come as no surprise. Noting that nine month net profit of $326.5 million 'deviates significantly from FY08 consensus estimate of $425 million and our own forecast of $465 million', Kim Eng Research analyst Rohan Suppiah added 'we are downgrading Cosco to a 'hold', and cutting our target price to $1.35'.

Mr Suppiah added that although this represents a 31 per cent upside to current price, 'we are reducing our recommendation to a 'hold', as we are unable to determine the full level of provisioning at this point, raising the risk of further earnings downgrades'.

DMG and Partners analyst Serene Lim meanwhile was even more severe. 'While we have previously factored in 20 per cent cancellation orders in our estimates, we are putting our earnings estimates under review pending further clarifications with the management. Meanwhile, we are maintaining our target price of 68 cents based on 1.0x FY09 price/book and our 'sell' rating,' she said in a morning note yesterday.