Capital markets news summary for Fri 17 Feb 2023

Capital markets news summary for Fri 17 Feb 2023

Fitch reaffirms Malaysia’s BBB+ rating

The rating reflects a diversified economy with strong medium-term growth prospects against high public debt, low revenue base relative to operating expenditure and political instability that hinders long-term policy-making. The rating agency projects gross domestic product (GDP) growth at 4% in 2023 compared with the median for BBB-rated countries of 2.4%. The projection for 2024 is 4.8%. Service industries are expected to benefit from resilient domestic demand, contained inflation and recovery in tourism from China’s reopening. Manufacturing and exports will face headwinds from weaker global demand for electronics and commodities. Fitch expects the debt-to-GDP ratio to fall from 77.6% in 2021 to 73% by end-2023 with economic growth and the government’s fiscal consolidation. The median for BBB-rated countries is 55.6%. Fitch also expects budget deficits averaging 4.5% of GDP in 2023-2025.

Dialog to set up renewable fuel terminal at Tanjung Langsat

The new Terminal Langsat 3 – with a capacity of 24,000 cubic metres – will be used to store biodiesel, sustainable aviation fuel and associated feedstock. Construction will be completed by 4Q2024. Dialog said that the development is in response to growing investor interest in low carbon fuel alternatives. Their potential customers include biofuel manufacturers, energy trading houses and multinational energy companies. Dialog’s Terminal Langsat has 855,000 cubic metres total capacity with extra 17 acres of space for an additional 200,000 cubic metres. For 6M ended 31 Dec 2022, the company’s net profit fell 1.5% from RM256.69m to RM252.94m. Revenue grew 43.7% from RM1.05b to RM1.51b. The counter closed at RM2.58.

Cape EMS to list on Main Market at 90 sen per share

The company’s core businesses are aluminium die cast manufacturing, electronics manufacturing services and supply of electronic products. Cape EMS launched its prospectus on 16 Feb for an initial public offering (IPO) involving a public issue of 173m shares with 46.2m shares for the Malaysian public. The company will have an enlarged share capital of 923m shares upon listing. From the proceeds of RM155.7m, RM62.8m is set aside for a new cleanroom facility and the purchase of new automated production lines for its electronics manufacturing services operations while RM53.1m is for the construction of a new warehouse. The company also announced a dividend policy of 30% of profit after tax. The company expects to grow its current 1% share of the RM123.4b market for the manufacturing of electronic equipment in Malaysia. The retail offering closes on 24 Feb and listing will be on 10 Mar.

MHB signs MOU on green hydrogen production

Malaysia Marine and Heavy Engineering (MHB) executed a memorandum of understanding with US-based FuelCell Energy Inc to develop large-scale electrolyser facilities in Asia, New Zealand and Australia to produce hydrogen. The collaboration aims to deal with the issue of cost of input electricity and the capital cost of the production facilities. FuelCell’s solid oxide technology requires lower energy input compared to lower efficiency and low-temperature electrolysis. MHB’s advantage in the partnership is the ability to build at scale thereby reducing the cost of large-scale electrolyser projects. FuelCell has announced that they are open for orders. MHB closed at 73 sen.

US consumers’ USD1.6t buffer used to absorb inflation is depleting

Payroll surge, bumper retail sales and soaring equity prices are pushing the Federal Reserve to continue raising rates. Some investors believe that the Federal Reserve may do more than the market expects. There is a risk that tighter credit triggers a recession and the savings that consumers built up during the pandemic is run down. The likelihood has risen from the federal funds rate peaking at 4.9% 2 weeks ago to 5.2% by Jul 2023. Some investors are even expecting rates to go to 6%. The current federal funds rate is 4.5%-4.75%. The Chairman of the Federal Reserve, although acknowledging that the disinflationary process has begun, sees the strong labour market with high wage growth as the source of inflation. Payrolls have expanded by 356,000 per month in the last 3 months, above the 100,000 equilibrium. Separately, the Bureau of Labor Statistics reported that the producer price index rose 6% year-on-year, higher than the 5.4% median estimate based on Bloomberg’s survey.