Malaysia Consumer Price Index - Up 3.8% YoY in May as food index shot up

· Malaysia's Consumer Price Index (CPI) jumped to 3.8% in May, the strongest reading in 22-months, as the cost of food and non-alcoholic beverages shot up by 8.2% YoY. It was higher than expected.

· Following the recent fuel price hike, we may not be surprise if the inflation rate may spike up to above 6.0% in June. Inflationary pressures will be stoked further in July, when power companies introduce new electricity tariffs. Hence, we expect the CPI to remain above 5.0% for the rest of the year. Given the surprisingly higher May base, we are adjusting our CPI forecast to 5.1% from our earlier projection of 4.1% for 2008.

· The current situation may have put BNM in a difficult spot to maintain its monetary policy stance and try to hold its policy rate steady at 3.50%. However, following BNM Governor's press statement, it provides us with more reason to allocate higher probability that BNM may raise the OPR by at least 25 basis points this year.

Healthcare- Recession-proof industry

A couple went to a sex therapists office at ABC Hospital.
The doctor asked, "What can I do for you?"
The man said, "Will you watch us having sex, give your expert analysis?"
The doctor looked puzzled, but agreed. When the couple finished, the
doctor said, "There's nothing wrong with the way you have intercourse"
and charged them RM60.00.
This happened several weeks in a row. The couple would make an
Appointment, have intercourse with no problems, pay the doctor and then
leave.
Finally the doctor asked, "Just exactly what are you trying to find
out?"
The man said, "We're not trying to find out anything. She's married and
we can't go to her house - I'm married and we can't go to my house.
Shangri-la Putrajaya charges RM250.00, Mandarin Oriental charges
RM280.00, Le Meridian charges M230.00. We do it here for RM60.00 and I
get that back from "Medical Claim".......!

Pak Lah: "Oil price hike for the best benefit of rakyat"

CIMB downgrade CI to 1,290 - NEUTRAL

Petrol prices have been raised 41%, along with the price of gas sold to Tenaga. However, Tenaga will get a 18-26% electricity tariff hike from 1 Jul. IPPs will have to pay 30% windfall tax on earnings above ROAs of 9%. Plantation companies will incur 7.5-15% levies on CPO sold above RM2,000/tonne but this will be sweetened by the scrapping of the cess tax. The petrol and electricity price hikes are negative for most sectors as it will raise costs and dampen consumer sentiment. The windfall tax on IPPs is clearly negative but the impact is minimal while the net impact on plantation companies is mixed but marginally positive. Tenaga appears to be the main beneficiary as higher tariff rates should easily offset the hike in gas prices. These simultaneous price hikes and windfall taxes on investor-favoured sectors are unprecedented. We expect the market to be rattled in the short term and are lowering or end-08 KLCI target from 1,350 points to 1,290 points. Maintain NEUTRAL weighting.

Oil Price Hikes Unevitable : Life must goes on...

I'll continue to favour the following stocks despite last week's goodies from Faklah to all Malaysians:

1- KHSB - Should be a good buy at RM0.61-0.62, RM0.74 resistance
2- KUPS - Buy below RM2.20, also worth holding longer
3- Oil & Gas - Selective, theme play - i.e Ramunia, Sapcres, Kencana
4- Plantation - Tradewinds, others
5- REITS, Investment Property Players - IGB, KLCC Prop; despite weaker consumer spending ahead, rental yields would remain high.

KHSB(RM0.66)- going private?

Kumpulan Hartanah Selangor Berhad (KHSB)- the Selangor State listed-entity, 57%-held by KPS while KPS is 60.2% held by KDEB. With property-related matters mainly dealt at PKNS level, i believe that having KHSB continue to be listed may be seems as duplication of function, unless S'ngor MB has other plans for the Company.

Current NAV stood at RM1.00.
Trading range from RM0.66-RM0.73.
Support:RM0.66, Resistance:RM0.75

Banking-updates by RHBRI

¨ Industry underlying loan growth continued to accelerate. Mar 08 underlying loan growth accelerated to +10% yoy (Feb 08: +9.8%) after resuming normal service post the festive season and a short month in Feb 08. This was underpinned by both the business and household segments. We are not changing our 2008 loan growth projection of 7% as we expect loan growth to slow down in the latter part of 2008.

¨ Leading loan indicator still robust. The 3-month moving average loan approvals decelerated to +35.6% yoy (Feb 08: +53.7%). Despite the significant higher base in Mar 07 (mainly from the business sector), this is still a robust growth, underpinned by double-digit growth from the household (+39.3% yoy) sector and SMEs (+10.5% yoy).

¨ As expected, average lending rate (ALR) declined to 6.21% (Feb 08: 6.27%). We continue to hold the view that domestic economic activities, consumption and rising loan base will more than offset the pressure on margin.

¨ Asset quality continues to improve while absolute gross NPL reverted back to mom reduction. The Mar 08 three-month gross and net NPL ratios (post-GP8 adjustment) improved by 18bps and 20bps mom to 5.29% and 2.97% (Feb 08: 5.47% and 3.18%), respectively. After snapping an 18-month winning streak in Feb 08 (where absolute gross NPL increased mom), this number reverted back to a mom reduction.

¨ Risks: 1) slower-than-expected loan growth; 2) deterioration in asset quality; and 3) changes in market conditions that may adversely affect investment portfolios.

¨ Forecasts. No changes to our earnings forecasts for the banks.

¨ Investment case. We like the sector for its resilient yet growing earnings, high liquidity and dividend yield (all defensive qualities amidst global uncertainties) as well as good proxy for an expected market recovery in 2H08. Stocks in our universe also have their respective catalyst(s). Our top picks (in order of preference) are Public Bank, Maybank, BCHB, HL Bank and AMMB.