MIDF Research revises GDP forecast on current dev’t

KUCHING: Malaysia’s economy has been predicted by the research arm of MIDF Amanah Investment Bank Bhd (MIDF Research) to expand by 5.2 per cent this year, based on the current developments and indicators.

MIDF Research had revised its gross domestic product ( GDP) forecast from 5.5 per cent to 5.2 per cent for 2018.

“Based on the current developments and indicators, we predict Malaysia’s economy to expand by 5.2 per cent this year given the upbeat performance of domestic and external trade sectors.

“Besides, supportive economic policies, stable labour market, continued wage growth and moderating inflation will support and spur domestic economy.

“Moving forward, we foresee the economic performance in 2H18 to expand at slower pace amid of escalating trade war tension,” the research arm projected.

According to MIDF Research, Malaysia’s GDP growth expanded by 4.5 per cent year on year (y-o-y) in the second quarter of 2018 (2Q18), below its forecast of 4.9 per cent y-o-y and market expectations of 5.2 per cent y-o-y.

“We opine the slowdown in GDP growth was in tandem with moderating performances of industrial production, manufacturing sales, distributive trade and external trade during the quarter,” the research arm said.

“Press Metal currently consumes circa 390,000 MT of pre- baked carbon anodes annually (used for smelting), while the JV facility is planned for an annual capacity of 320,000 MT. Management has indicated that it will source about half the carbon anode requirements from the JV company and continue to source the balance externally.

“This should give Press Metal better control over its supply chain, especially in the current volatile carbon anode market. Press Metal has an option to increase the JV stake by an additional 20 per cent to 40 per cent after three years,” it added.

On its financial performance, the research team said, currently, Press Metal is in the midst of expanding its wire rod capacity by an additional 50,000 MT (148,000 MT currently) and billet capacity by 60,000 MT (180,000 MT currently), which are slated for completion by 4Q18.

It noted that Press Metal has indicated that this would increase high-value product composition to 50 per cent by year- end (compared with 41 per cent in 2Q18 and 30 per cent in 1Q18).

Kenanga Research remarked: “The group aims to achieve 70 per cent high-value product composition in 2019 by further expansion of wire rod and billet lines. The incremental profit for high-value products is circa US$ 70 per MT. All else constant, a 30ppt increase in high-value product composition to 70 per cent would translate into circa nine per cent growth from FY18E core net profit. We are currently assuming an average of 65 per cent composition for FY19E.”

All in, it pegged a ‘ market perform’ on the stock, with no change in its FY18 to FY19 estimated CNP of RM720 billion to RM1.01 billion as it believed its FY18 aluminium price assumption of RM2,000 per MT remains valid despite 1H18 averaging RM2,207 per MT.

“This is because we see potential pullbacks in aluminium prices to RM1,800 per MT on possible Alunorte plant restarting and Rusal sanction relief,” it added.