MIB Research Summary - 13 Oct 2014

MY Strategy: Maintain Neutral

Budget 2015: Positive reaffirmation

No surprises – project reaffirmation positive for Construction, GST and subsidy rationalisation negative for Consumer. No change in our sector weights – we continue to Overweight Construction, and Oil & Gas. Maintain 1,940 end-2014 KLCI target, introduce 2,040 for end-2015. Key domestic risk is corporate earnings growth. Budget 2015 Walking the fiscal talk No major surprise as Budget 2015 maintains the momentum on fiscal consolidation. Key tax measures were already announced in Budget 2014 i.e. introduction of a broader-based 6% GST on 1 Apr 2015 to replace the narrower-based 5%-10% Sales Tax and 6% Services Tax, and in exchange for personal and corporate income tax rate cuts in 2015-2016. There is also indication of further fuel subsidy rationalisation next year. One thing to watch is whether the efforts will be "rewarded" by the international rating agencies via upgrade in its sovereign ratings and/or outlook. Industrial Production, August 2014 Like external trade, better than July Growth regained momentum (Aug 2014: +6.5% YoY; Jul 2014: +0.6% YoY) on broad-based increase in all components. But moderating expansion so far in 2H 2014 (Jul-Aug 2014: +3.5% YoY; 1H 2014 +5.3% YoY) Further indication of slowing real GDP growth after earlier release of similar trend in external trade. Manufacturing Sales August 2014 Firmer August after July's dip Mirroring industrial output and external trade data, manufacturing sales performance was better in Aug 2014 vs July 2014. Similarly, despite sequential improvement, growth in Jul-Aug 2014 slowed to 3.3% YoY vs 5.7% YoY in 2Q 2014. Data further points to easing in economic growth in 2H 2014 after a robust 1H 2014. Plantations: Neutral Crude oil slump to delay recovery Recent slump in crude oil prices have quashed hope of a swift CPO price recovery by December. CPO price needs to trade closer to MYR2,000/t to stimulate demand and flush out incoming supplies in Oct/ Nov. Sustained CPO price recovery to above MYR2,400/t may now be deferred to 1Q15. Maintain our 12M NEUTRAL view. Technicals Downside volatility from lofty levels The FBM KLCI plunged 31.94 points WoW to close at 1,808.88, as persistent selling activities led the index down in a volatile week ahead of Budget 2015. Volume rose from 1.82b to 2.58b shares. Trading idea is a Take Profit call on COASTAL with downside target areas at MYR3.98 & MYR3.39.