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(Aug 27): “The current monetary policy stance seems adequate and provides room to accommodate a temporary increase in inflation,” the OECD said in its Economic Survey on Malaysia published Tuesday. “At the same time, monetary authorities should stand ready to raise rates to counter possible second-round effects from higher energy prices,” it said.

While Malaysia’s inflation has stabilised around 2%, there are “significant risks” around the price growth trajectory that warrants caution, according to the OECD. The report comes as easing price pressures in countries including the US have given central banks the scope to start pivoting to rate cuts. The Philippines reduced borrowing costs from a 17-year high earlier this month while Indonesia and Thailand have signalled openness to loosen monetary settings.

The inflation trend in Malaysia depends a lot on the pace of subsidy removal, which explains why it faces the risk of further monetary tightening unlike its peers. This too, as the inflation effects of the subsidy withdrawal are highly uncertain, according to the OECD.

Prime Minister Datuk Seri Anwar Ibrahim allowed diesel prices to float in June in order to strengthen government finances. He intends to do the same with the more heavily subsidised and most widely used fuel RON95. The move could potentially increase inflation by 3.05 percentage points, according to calculations by RHB Bank Bhd analyst Chin Yee Sian, who expects the government to push the RON95 subsidy removal to end-2024 at the earliest.

Malaysia increased its key rate by 125 basis points over a one-year tightening cycle that started in May 2022, taking the overnight policy rate to 3% from a record low 1.75% during the pandemic. The statutory reserve requirement that was also cut during the height of Covid-19 has remained well below pre-pandemic levels.

In the best case scenario, removing energy subsidies could increase inflation temporarily, said the OECD. But there could also be more enduring second-round effects and more widespread upward pressures, it said.

“Against this background, it is important to avoid a premature easing of the monetary stance and to respond quickly to any inflationary pressures that could result from the planned reform of subsidies,” the OECD report said.

Source: The edge markets

Korea's central bank chief on Tuesday defended the bank's latest rate freeze decision, saying that the level of household debt is inching toward a point that can cause an economic slowdown and a potential financial crisis.

Last week, the Bank of Korea (BOK) held its key rate steady at 3.5 percent for the 13th straight session due to soaring home prices but opened the door for a policy pivot this year.

"We judged that a rate cut can further stoke home prices and increase the volatility in the currency market," BOK Gov. Rhee Chang-yong said at a forum.

There have been various opinions over the central bank's rate freeze decision, but at the moment, policymakers should review why the central bank should hesitate in slashing the key rate in the face of high household debt and soaring home prices, Rhee said.

The central bank's rate freeze decision is intended to highlight the dangers of such a vicious cycle of excessive demand in some areas, namely the posh Gangnam district, according to the central bank chief.

"We are at a point where we could face an economic slowdown if household debt further increases and must brace for a potential financial crisis," he said.

Last week, the central bank said inflation has continued its downward trend and the recovery in domestic demand has been modest.

But it still needs to further monitor how recent measures over the housing market are affecting home prices in Seoul and its surrounding areas and household debt.

The rate freeze came as household debt runs high in the face of a series of lending rate hikes and with tighter lending rules and inflationary pressure in Asia's fourth-largest economy showing signs of easing.

Rhee stressed that rising household debts and home prices should be dealt with immediately to ensure financial stability.

"Household debt should be considered for financial stability, and most board members see the need to curb rising real estate prices," Rhee said in a press conference last week. 

Source: Korea times

KUALA LUMPUR (Aug 27): FGV Holdings Bhd (KL:FGV) has returned to the black with a net profit of RM86.38 million in the second quarter ended June 30, 2024 (2QFY2024) compared with a net loss of RM12.9 million a year earlier, on higher profits in the plantation, and logistics and support divisions. This was partially offset by weaker performance in the sugar, and oils and fats divisions in the current quarter.

It also managed to turn around a net loss of RM13.49 million in 1QFY2024.

The better performance saw it posting an earnings per share of 2.37 sen for 2QFY2024 compared with a loss per share of 0.35 sen for 2QFY2023.

FGV also saw revenue for the quarter rise by 22.7% to RM5.52 billion from RM4.49 billion in 2QFY2023, driven by a higher average crude palm oil (CPO) price and sales volume. The CPO price rose to RM4,103 per tonne in 2QFY2024 compared with RM4,000 per tonne in 2QFY2023.

In a filing with Bursa Malaysia on Tuesday, FGV said its plantation division registered a profit of RM100.55 million in 2QFY2024 compared with a loss of RM61.64 million a year earlier. This was primarily driven by a 23% rise in fresh fruit bunch (FFB) production to 960,000 tonnes from 780,000 tonnes in 2QFY2023, resulting in a higher yield of 3.76 tonnes per hectare from 2.91 tonnes per hectare respectively.

Additionally, the FFB price increased by 6.5% to RM819 per tonne, while estate operational costs decreased by 6%, it added.

No dividend was declared for 2QFY2024.

For the cumulative six months ended June 30, 2024 (1HFY2024), the group also managed to post a net profit of RM72.89 million compared with a net loss of RM805,000 in 1HFY2023, while revenue rose 10.7% to RM10.06 billion from RM9.09 billion a year earlier.

On prospects, FGV said demand and supply for palm oil are expected to stay steady in the second half of 2024. It is projecting the CPO price to be between RM3,800 per tonne and RM4,000 per tonne in 2024.

"Operationally, FGV will continue prioritising yield enhancement initiatives within its plantation operations by closely monitoring crop harvesting processes and expanding mechanisation for efficient FFB evacuation. The group is actively diversifying its FFB supplier base to enhance supply chain stability.

"On the cost side, the drop in fertiliser prices has helped reduce production cost pressures and is anticipated to continue softening throughout 2024," it added.

As for the sugar division, it remains cautious about the rising geopolitical tensions, which may increase input costs and impact financial performance. Simultaneously, the division is strengthening its presence in domestic and export markets while exploring new regional opportunities.

Barring any unforeseen circumstances, FGV expects a satisfactory performance for the financial year ending Dec 31, 2024 (FY2024), aligned with industry expectations.

Source: The edge markets

It has been a volatile past couple of trading days for BILL Holdings.

BILL Holdings (NYSE: BILL), the parent company for payment and billing provider BILL, saw its stock price shoot almost 6% higher on Monday, making it one of the top gainers on the day.

The stock has experienced a volatile past couple of days since it reported its fiscal fourth quarter earnings last week. The company easily beat revenue and earnings expectations for the quarter, yet the stock tanked nearly 10% post earnings.

Let’s take a look at why it fell so sharply last week and what triggered BILL stock to rise on Monday.

BILL beats earnings estimates

BILL’s fourth quarter results were strong, as the provider of billing and payment solutions for small businesses easily topped earnings estimates.

Revenue surged 16% year over year to $343.7 million, which bested revenue estimates of $328 million. Core revenue, which consists of subscriptions and transactions fees, rose 16% year over year to $301 million. Transaction fees, which are fees the company gets from processing transactions for clients, rose 22% while subscriptions for its services saw a 2% revenue decline.

Net income improved to $7.6 million, or 7 cents per share, up from a $15 million loss the same quarter a year ago. Adjusted earnings were 57 cents per share, up from 48 cents per share in the same quarter of the previous fiscal year and ahead of 47 cents per share estimates.

“Our financial performance demonstrated the strength of our business and the rigor of our execution in driving growth and expanding profitability in a muted economic environment,” John Rettig, BILL president and CFO, said. “In fiscal 2025, we plan to make targeted investments that accelerate our strategic priorities and ability to capture the large, greenfield market opportunity that we are serving. We believe these investments will reinforce our industry leadership and position us to deliver significant, sustainable revenue growth and margin expansion in future periods.”

It was the outlook for fiscal 2025 was what concerned some investors and why the stock price tanked last Friday after earnings.

Outlook calls for big investments, slower growth

BILL stock got several analyst downgrades last week, mainly due to its projections for slower growth. Among them was Goldman Sachs, which dropped the price target to $54 from $86 and lowered its rating to neutral from buy.

While revenue is projected to increase 13% to 15% year over year to $346 million to $351 million in Q1, adjusted earnings were anticipated to be 48 cents to 51 cents, below analysts’ estimates.

Also, for the full fiscal year, revenue projections of $1.42 billion to $1.45 billion were roughly in line with expectations, but adjusted earnings were projected to be below estimates. BILL called for adjusted EPS of $1.36 to $1.61 for fiscal 2025, which is significantly lower than $2.12 per share for fiscal 2024 and way off of consensus estimates of $2.22 per share.

This is mainly due to the significant investments the company is making in its strategic priorities to gain market share, as Rettig referenced in his comments.

While these moves could pay off for BILL in the long run, they seemed to scare off investors last week as they are expected to place a drag on earnings next year.

Why BILL stock jumped 6% Monday

The market reacted swiftly and aggressively to BILL’s outlook, with investors selling off shares as several analysts lowered their price targets.

But as is often the case, the selloff created a buying opportunity, as investors saw an opportunity Monday to buy stock in a solid, growing company that is investing in its future.

The stock comes pretty cheap right now, especially in relation to its long-term growth prospects, with a low five-year P/E-to-growth (PEG) ratio of 0.69, suggesting BILL stock is considerably undervalued.  

It is currently trading at $50 per share and has a median price target of $68 per share. The street still sees significant upside for BILL, despite the muted outlook.

It might be a good idea for investors to gain more visibility on its investment plans and how it will execute on its long term growth strategy. However, its consistent revenue growth and low valuation make BILL stock worth watching.

Source: FXSTREET

Key developments that could influence markets on Tuesday:

Source: Reuters