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Author: MalaccaSecurities   |   Latest post: Mon, 18 Mar 2019, 12:49 PM

 

Mplus Market Pulse - 25 Jun 2018

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Angling For A Rebound

  • Bargain hunting activities in selected blue chips lifted the FBM KLCI (+0.1%) to close in the positive territory and allowing the key index to halt a ten-day losing streak. Still, local bourse fell 4.4% W.o.W, dragged down by earlier losses in the past week. The lower liners – the FBM Small Cap (+0.5%), the FBM Fledgling (+0.2%) and the FBM Ace (+2.1%) also rebounded, while the entire broader market ended mostly positive.
  • Market breadth turned positive as advancers outnumbered decliners on a ratio of 480-to-350 stocks. Traded volumes, however, fell 5.4% to 2.02 bln shares as investors remain cautious amid the recent volatility.
  • Almost half of the key index constituents advanced, led by banking giants likes Public Bank (+30.0 sen), Hong Leong Financial Group (+28.0 sen), Hong Leong Bank (+22.0 sen) and RHB Bank (+17.0 sen), while Petronas Dagangan added 16.0 sen. Notable gainers on the broader market include United Plantations (+RM1.00), Carlsberg (+32.0 sen), Fraser & Neave (+30.0 sen), Top Glove (+20.0 sen) and Aeon Credit (+18.0 sen).
  • BAT (-96.0 sen) remains as the biggest decliner on the broader market, while KESM Industries (-32.0 sen), Time dotCom (-18.0 sen) and Batu Kawan (- 14.0 sen) fell. Superlon sank 28.0 sen after reporting a weak set of quarterly earnings. Meanwhile, PPB Group (-16.0 sen), KLK (-14.0 sen), Tenaga (-14.0 sen), MISC (-8.0 sen) and Axiata (-7.0 sen) topped the big board decliners list.
  • Asia benchmark indices closed mostly higher as both the Hang Seng Index (+0.2%) and Shanghai Composite (+0.5%) rebounded after recovering all their intraday losses with the latter lifted by software and media stocks after top officials announced plans to accelerate 5G commercialisation. The Nikkei (-0.8%), however, erased all its previous session gains. ASEAN stockmarkets, meanwhile, closed mostly positive last Friday.
  • Wall Street closed mostly higher last Friday as the Dow gained 0.5%, lifted by energy shares after OPEC and Russia decided to increase smaller-thanexpected production. On the broader market, the S&P 500 gained 0.2%, anchored by gains in the energy sector (+2.2%), but the Nasdaq finished 0.3% lower.
  • Earlier, European benchmark indices – the FTSE (+1.7%), CAC (+1.3%) and DAX (+0.5%), all advanced as investors cheered OPEC’s production decision. Adding on to the upside was Italian government reportedly not looking to exit from the European Union – resulted in the positive sentiment in banking shares.

The Day Ahead

  • Although the key index managed to stage a minor recovery last Friday, the global market outlook is still unclear amid the continuous U.S. rhetoric on tariff impositions - the latest being potential tariffs on European automobiles. With the threat still prevalent, we see the Malaysian stockmarket conditions remaining wary in tandem with the conditions overseas and the market’s direction is likely to stay largely indifferent.
  • Nevertheless, the Malaysian stockmarket could be attempting to find a base after last Friday’s recovery as the FBM KLCI remains oversold and a rebound is due. The recovery may continue amid mild bargain hunting activities after last week’s steep falls. However, we think the near term gains could be measured as the still cautious market undertone could limit its upsides. Hence, we think the rebound could be limited to the 1,700 points level. Beyond the 1,700 points level, the next resistance is at 1,710 points. The supports, meanwhile, are at 1,690 and 1,680 respectively.
  • The lower liners and broader market shares are also seeing some reprieve from the incessant selling and we think there could be some further mild recovery at the start of the week.

Company Update

  • Comfort Gloves is planning to acquire a 38.9-ac. leasehold land in Daerah Kinta, Perak, from Nestle (Malaysia) Bhd for RM13.2 mln in cash
  • The lease on the land expires on 7th November 2058 and will be financed via internal funds. The proposed acquisition is in-line with its future expansion plans.

Comments

  • We note that the group has been ramping up its production capability steadily as average volume grew about 21.0% from FY16 to FY18. Meanwhile, above average machine utilisation (85.0% to 90.0%) suggest robust demand for its rubber gloves, despite an industry-wide capacity increase by other glove-makers like Hartalega Holdings Bhd.
  • We think that the leasehold land could potentially be used to house a new warehouse and additional production lines. As such, we are sanguine on the proposed acquisition as increased capacity could indicate expectations of higher orders to drive future topline growth.
  • We do not think that the purchase will significantly impact Comfort’s gearing due to its strong balance sheet position. The group has been in a net cash position for the last five years, with cash holdings of RM28.6 mln as at 30th January 2018.
  • Nevertheless, we downgrade our recommendation on CGB to HOLD (from Buy) with a lower target price of RM0.92 (from RM0.95) following the run-up in its share price from our last call that has mostly reflected its nearterm positives. Our target price is arrived by ascribing an unchanged PER of 17.0x to its revised FY19 EPS of 5.4 sen on slightly higher depreciation assumptions.
  • The ascribed target PER remains at a discount to the PER of industry bellwethers like Hartalega Holdings Bhd and Top Glove Corporation Bhd due to its smaller market capitalisation and capacity.

COMPANY BRIEF

  • Willowglen MSC Bhd has secured a RM8.6 mln contract from SP PowerAssets Ltd to maintain 30 document management solutions' product data management (PDM) systems and upgrade 22 PDM system workstations. The contract is for threeyears and will end on 20th June 2021. (The Edge Daily)
  • Icon Offshore Bhd was awarded a contract worth RM23.0 mln to provide a utility vessel to Hess Exploration and Production Malaysia BV for its operations. The project will commence from the date of the letter of award and will expire at the end of three years from the vessel’s on-hire date, with two extension options of one year each. (The Edge Daily)
  • Green Packet Bhd has announced that it plans to raise up to RM52.6 mln via a renounceable rights issue on the basis of one rights share-for-every five existing shares owned, together with warrants on the basis of three warrants-for-every one rights share. The cash call will include 150.2 mln rights shares and 450.6 mln warrants to be issued.
  • The funds are expected to be used for future viable investments, working capital for media and digital services, and working capital for finance technology (fintech) solutions. (The Edge Daily)
  • The contract of Malaysia Airports Holdings Bhd‘s (MAHB) Managing Director Datuk Mohd Badlisham Ghazali will end today.
  • Subsequently, MAHB's Chief Financial Officer (CFO), Raja Azmi Raja Nazuddin will serve as Acting Group Chief Executive Officer. He joined MAHB as CFO on 1st February 2016, and was the executive director and group CFO of UDA Holdings Bhd prior to MAHB’s appointment. (The Edge Daily)
  • Fitters Diversified Bhd has increased its equity stake in Molecor (SEA) Sdn Bhd to 72.3%, from 65.0% after it subscribed for an additional 60.0 mln new shares in Molecor for 50.0 sen per share (RM30.0 mln) by offsetting the amount owed by Molecor to the group as at 30th April 2018. (The Edge Daily)
  • SCGM Bhd's 4QFY18 net profit plunged 97.0% Y.o.Y to RM150,000 vs RM5.1 mln last year, dragged down by higher resin prices, finance costs, depreciation charges, labour cost and forex losses.
  • Quarterly revenue also declined 8.8% Y.o.Y to RM48.2 mln, from RM52.9 mln in 4QFY17. Nevertheless, the group has declared a fourth interim dividend of 1.5 sen per share, payable on 25th July 2018, bringing the total dividend payout for the year to RM11.6 mln or 70.7% of the group’s FY18 net profit.
  • The weak 4QFY18 results also dragged the group’s full-year net profit down to RM16.4 mln (-28.7% Y.o.Y), from RM23.0 mln a year ago, although revenue gained 16.0% Y.o.Y to RM207.4 mln, from RM178.8 mln. (The Edge Daily)  

Source: Mplus Research - 25 Jun 2018

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