Executive summary for capital markets news | Tue 11 Apr 2023

Executive Summary for Capital Markets News | Tue 11 Apr 2023

UMW gets RM1b Rolls-Royce contract

In Aug 2015, UMW Aerospace became Malaysia’s first home-grown Tier 1 aerospace engine component supplier to Rolls-Royce after receiving a 25+5 year contract to manufacture and assemble fan cases for the Trent 1000 and Trent 7000 engines. It took the company only 2 years to its maiden delivery. The company has now bagged a 15-year contract to manufacture rear cases also for the Trent 1000 and Trent 7000 engines. It will invest RM65m to set up chemical milling – the first in Southeast Asia – and related processes at its existing facility in the UMW High Value Manufacturing Park in Serendah. The rear cases are currently imported and assembled into a complete fan case. UMW Aerospace was inducted into the 2021 high-performing supplier group which represents the top 5% of Roll-Royce’s global suppliers, and has successfully maintained its position in the 2022 and 2023 cohort. UMW shares closed at RM3.82.

Harrisons proposes 50 sen dividends after record 2022 profits

The company reported net profit rose by 60.92% from RM41.74m in 2021 to RM67.17m in 2022 due to higher gross margins of 11.69% from 11.22%. This was contributed by adjustments to inventory costing, write-back of ullage provisions and lower allowance for impairment of trade receivables. Its revenue grew 12.56% from RM1.93b to RM2.17b on better sales volume and selling prices for its fast-moving consumer products in East Malaysia. Cement sales, amongst others, improved. The proposed dividends are the highest since 2011 with a 70 sen payout and is subject to shareholders’ approval. The entitlement and payment dates will be announced later. The company said that its enterprise resource planning system in Sabah went live and will help in monitoring costs and improve operating efficiencies. The counter closed at RM9.09 having climbed 56.45% in the last 6 months.

Slight improvement in unemployment rate to 3.5%

After holding steady at 3.6% since Sep 2022, the jobless rate in Feb 2023 improved with 591,900 unemployed people from 596,100 people in Jan. The employment to population ratio hit an all time high of 67.4% from 67.3% in Jan. Economists suggest that Malaysia’s economy has robust ability in creating jobs and still far from labour market tightness with the highest ever labour force participation of 69.9% in Feb compared with 69.8% in Jan. The labour force increased by 25,800 people – the 20th consecutive monthly increase – from 16.76m to 16.78m. There are also a larger number of workers outside the workforce at 7.24m compared to 7.13m at end-2019 pre-pandemic primarily due to family responsibilities and schooling. The slack in the labour market is narrowing and Bank Negara Malaysia projects the jobless rate to hit 3.3% by end-2023. Other analysts see job vacancies at 150k-250k per month for 2023 compared to 396,300 in 2022. The primary sectors, construction and services will support job creation in 2024.

MBSB Bank sues Bintai Kinden for default on Islamic financing facility

The RM109m facility was obtained in 2018 by Optimal Property Management Sdn Bhd – Bintai Kinden’s wholly-owned subsidiary – to finance the construction of an in-campus accommodation for Kolej Teknologi Islam Melaka Berhad. Bintai Kinden was the guarantor for the facility. The bank is claiming an outstanding amount of RM238.52m up to 6 Apr 2023. In addition, the bank is claiming ta’widh or compensation charges of 1% per annum on the amount of RM107.54m from 7 Apr until the date of judgment. Case management is fixed on 11 May. In Mar 2023, Bintai Kinden said it had been classified as a PN17 issuer after Optimal Property Management’s default. In a separate announcement, Bintai Kinden’s subsidiary – Johnson Medical International Sdn Bhd – is being sued for RM26.81m in liquidated and ascertained damages (LAD) by Axbena Sdn Bhd for sub-contractor works related to a medical gas system built for Universiti Teknologi Mara’s teaching hospital. The court fixed 10 May for case management. Bintai Kinden closed at 3.5 sen after plunging 56.25% in the past 3 weeks. MBSB Bank closed at 60 sen.

US credit crunch could have already taken place

Inflation is more than double the Federal Reserve’s 2% target which pushes policymakers towards increasing rates in their 2-3 May meeting. Notwithstanding, overall bank credit has stalled at USD17.5t since Jan 2023 and year-on-year growth is falling rapidly. Some banks are already projecting ¼ of the growth in 2022, focusing on better quality and higher yielding credit instead of volume. The tightening will make loans more expensive and harder to get. In the case of Silicon Valley Bank, the pandemic period of low interest rates made businesses, especially startups, flush with cash that they deposited with the bank. The bank then invested the cash in low-yielding government bonds. As the Federal Reserve raised rates aggressively, the businesses started making withdrawals because investors were no longer interested in bankrolling high-growth companies. The bank had to sell off the low-yield bonds at a loss, which led to a bank run. In 4Q2022, 45% of banks were tightening standards for commercial and industrial loans, near levels associated with recession.