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ECONOMICS & STRATEGY
(for the week of 12-15 May 1998)


Focus is on some major corporate developments

Changes in KLCI component stocks: The KLSE has decided to change the composition of its benchmark 100-stock KL Composite Index by adding seven new companies into the basket. They are Berjaya Sports Toto, Farlim Group, Malaysian National Reinsurance, MNI Holdings, Ramatex, Technology Resources In-dustries and YTL Corporation. They have a combined market capitalisation of RM18.44b as of Friday May 8. Booted out are Aokam Perdana, Diversified Resources Bhd, George Kent, Promet, Rashid Hussain Bhd, Rekapacific and Westmont Industries, with combined capitalisation of RM2.46b. The net effect is an 8% boost to the KLCI capitalisation, which stood at RM199.3b on Friday. The KLSE Index sub-committee released the seven stocks based on several criteria, including double-counting, stocks under restructuring, timeliness in submission of accounts, low trading volume and low market capitalisation. The changes take effect from July 1998.

Focus on AMMB Holdings, Telekom and Tenaga Nasional: The Government of Singapore Investment Corp (GIC) is reported to be eyeing a 15% stake in AMMB Holdings from Arab Malaysian Corporation Bhd. The stake, which would also include a proportionate amount of out-of-the-money convertible loan stocks and warrants, is expected to cost RM600-800m. That valuation is expected to peg its ordinary shares at premium to Friday's close of RM3.54 per share, and closer to its NTA per share backing of RM5.25 as at Sept 1997. This news is expected to underpin interest in AMMB Holdings, the financial flagship of Azman Hashim. Similarly, cash from the disposal of AMMB Holdings will partly fund the recapitalisation of Amcorp esti-mated at RM2b. Even so, the deal is far from clinched, as stringent conditions/guarantees are said to be needed on government-to-government basis.

News that Telekom may buy up the remaining 70% stake it does not already own in Mobikom, an analog mobile telecommunication services provider, is expected to drag the market down. Because Mobikom is a marginalised player in the competitive market and loss-making, Telekom's plan will be a drain to its cashflow. Investors, in our view, would be ready to cast such transaction in a negative light, not quite dissimilar to Telekom's previous expensive buyout of Emartel services from Malaysian Resources Corporation Bhd some years ago. Mobikom's other major shareholders are Edaran Otomobil Nasional (EON) with 30% and other undisclosed businessmen.

Tenaga Nasional's interim results are expected to be released on Friday evening after the market close. However, not much impetus is expected from this utility company, as currency troubles and the cost of electricity purchases from IPPs continue to impact earnings. It was reported that forex losses could hit its bottomline by RM2b in the interims. The group is expected to incur a net loss RM1.58b for the full-year to Aug 31 or a loss per share of 51.1 sen, according The Estimates Directory's consensus. Last year, it incurred a net loss of RM140.6m or 4.6 sen per share.

Regional political factors: Market undertones are expected to be dictated by political developments in Indonesia and the Philippines. Social unrests in Indonesia could escalate in the wake of violent students-led protests in major cities hard hit by the recent hike in food and fuel prices. The latest call is by a group of 39 prominent government critics, including a former governor of Jakarta, for the People Consultative Assembly to annul Suharto's presidential appointment last March. In Manila, popular people's choice Joseph Estrada is set to win the presidential election this week. But the composition of his proposed Cabinet line-up with left and right-wing thinkers continues to send jitter to investors. Even barring any major surprises, we expect the market to be volatile. We will remain sidelined for this week.

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