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Author: MalaccaSecurities   |   Latest post: Wed, 17 Jul 2019, 10:01 AM

 

Mplus Market Pulse - 21 Aug 2018

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Still Riding On Mild Upsides

  • The FBM KLCI (+0.2%) started off the week on a strong footing as the key index extended its gains after lingering mostly in the positive territory yesterday. The lower liners, however, ended mostly lower as the FBM Small Cap and FBM Fledgling fell 0.02% and 0.1% respectively. Nevertheless, the broader market ended mostly positive, anchored by the REITS sector (+0.6%).
  • Market breadth turned negative as advancers overpowered decliners on a ratio of 497-to-383 stocks. Traded volumes, however, rose 14.3% to 2.29 bln as amid the profit taking activities.
  • Leading the FBM KLCI winners list were Petronas Chemicals (+30.0 sen), KLCC (+11.0 sen), Axiata (+10.0 sen), Hong Leong Financial Group (+10.0 sen) and DIGI (+9.0 sen). Notable advancers on the broader market were Carlsberg (+44.0 sen), Bintulu Port (+23.0 sen), MPI (+16.0 sen) and Scientex (+15.0 sen). HSS Engineers jumped 17.0 sen higher after delivering strong set of quarterly results.
  • Plantations stocks like United Plantations (-60.0 sen), Batu Kawan (- 20.0 sen) and Far East Holdings (-18.0 sen) retreated. Star Media Group and P.I.E. Industrial fell 19.0 sen and 13.0 sen respectively after reporting weak sets of quarterly earnings. Meanwhile, Nestle (- 10.0 sen), Petronas Gas (-10.0 sen), Dialog Group (-7.0 sen), Hap Seng (-7.0 sen) and Sime Darby Plantation (-4.0 sen) were the major decliners on the local bourse.
  • Asia benchmark indices closed mostly higher as the Hang Seng Index jumped 1.4% on optimism over the upcoming U.S.-China trade talks. The Shanghai Composite (+1.1%) managed to snap a five-day losing streak, but the Nikkei fell 0.3% after the Japanese Yen appreciated against the Greenback. ASEAN stockmarkets, meanwhile, closed mostly higher yesterday.
  • U.S. stockmarkets extended their gains overnight as the Dow added 0.3% on optimism over a trade deal with China. On the broader market, the S&P 500 climbed 0.2% to record its third consecutive winning day, lifted by gains in the basic materials (+0.7%) and energy sectors (+0.7%), while the Nasdaq closed 0.1% higher.
  • Earlier, major European equities – the FTSE (+0.4%), CAC (+0.7%) and DA(+1.0%) all advanced after an eightyear-long Greece bailout officially ended. The positive sentiment was also boosted by the gains in energy shares – Total SA (+1.0%), BP PLC (+0.6%) and Royal Dutch Shell (+0.7%) after crude oil prices advanced.

The Day Ahead

  • We still think stocks on Bursa Malaysia will sustain their near term uptrend in tandem with the positivity in most global indices that is bouyed by a potential breakthough in the U.S.-China trade impasse. The ongoing results reporting season is also providing some trading impetus for market players to follow as the corporate results reported thus far have generally been an improvement.
  • Still, we see the upsides remaining modest as further gains will again push the market’s valuation into the expensive territory. At the same time, market breadth is still modest for the most part, thus providing few opportunities for stocks to make substantive gains. Therefore, the 1,790 level remains the immediate resistances, while the 1,800 points level will continue to serve as the major hurdle. The supports, meanwhile, are at 1,780 and 1,770 respectively.
  • The lower liners and broader market shares were mixed yesterday with quick profit taking activities taking precedent that could continue for now as retail players continue to trade cautiously.

Company Update

  • Teo Seng’s 2Q2018 net loss narrowed to RM0.5 mln vs. a net loss of RM5.8 mln recorded in the previous corresponding quarter due to the recovery in the average egg selling prices, coupled with the stabilising feed cost. Revenue for the quarter added 7.8% Y.o.Y to RM102.7 mln.
  • The reported results came below our expectations, making up to only 28.8% of our previous estimated net profit estimate of RM20.2 mln. Meanwhile, the reported revenue came slightly below our expectations, amounting to 45.4% of our full-year forecast of RM479.7 mln. The variance in its bottom line was due to higher overhead cost arising from the group’s expansion plans, coupled with the slower sales.

Comments

  • With the reported earnings coming below our expectations, we trimmed our earnings forecast by 30.8% and 20.2% for 2018 and 2019 respectively, accounting for the higher overhead cost, coupled with the lower average selling prices of eggs. Consequently, we downgrade Teo Seng to HOLD (from BUY) with a lower target price of RM0.90 (from RM1.15).
  • We rolled over our valuation metrics to 2019 and derive our target price by ascribing an unchanged target PER of 14.0x to its 2019 EPS of 6.4 sen. The ascribed target PER is at a 25% discount to its peers average of 18.7x due to its smaller market capitalisation. At current price of RM0.845, TSCB is trading at prospective PERs of 18.1x and 13.1x for 2018 and 2019 respectively and are already close to fair, in our view.

COMPANY BRIEF

  • Utusan Melayu (Malaysia) Bhd has been classified as a Practice Note 17 (PN17) company after defaulting on its principal and profit payment to Maybank Islamic Bhd and Bank Muamalat Malaysia Bhd, totalling RM1.2 mln and being unable to provide a solvency declaration to Bursa Malaysia.
  • The group is required to submit a regularisation plan to the Securities Commission or to Bursa Malaysia within 12 months from yesterday. (The Star Online)
  • Allianz Malaysia Bhd's 2Q2018 net profit spiked 35.2% Y.o.Y to RM89.9 mln, from RM66.5 mln, on the back of stronger revenue contribution at RM1.31 bln (+9.5 Y.o.Y), from RM1.19 bln a year ago. (The Edge Daily)
  • PN17 company, Petrol One Resources Bhd has submitted an appeal to Bursa Malaysia Securities against the latter’s decision to delist its securities from the Main Market of the local bourse on 24th August 2018. The group said that the delisting will be deferred as the appeal was submitted within the appeal timeframe, pending the decision by Bursa Securities on the appeal. (The Edge Daily)
  • Eita Resources Bhd's 60.0%-owned unit has clinched a RM67.2 mln contract to build a 132kV substation and to undertake the extension of a 275kV substation in Kemena, Bintulu, Sarawak. The contract, which was awarded by Sarawak Energy Bhd's subsidiary, Syarikat SESCO Bhd will commence on 13th September 2018. (The Sun Daily)
  • Gadang Holdings Bhd has secured an RM86.1 mln contract from TRX City Sdn Bhd to undertake public realm infrastructure work (Phase 1) at TRX. The project will run from 1st September 2018 until 2Q2019. (The Edge Daily)
  • Dayang Enterprise Holdings Bhd was awarded two maintenance, construction and modification contracts from Kebabangan Petroleum Operating Company Sdn Bhd and Repsol Oil & Gas Malaysia Ltd (Repsol O&G). The five-year contracts have commenced on 17th July 2018 and will expire on 16th July 2023, with an option to extend for another one year. (The Sun Daily)
  • Petronas Dagangan Bhd‘s (PetDag) 2Q2018 net profit rose 27.8% Y.o.Y to RM314.4 mln, from RM246.0 mln a year ago, mainly due to higher margin which resulted from increasing Mean of Platts Singapore (MOPS) price trend, lower product and freight costs, as well as an increase in other income arising from insurance proceeds claim received by a subsidiary, albeit partially offset by higher advertising and promotion expenses. Quarterly revenue also grew 10.0% Y.o.Y to RM7.28 bln vs. RM6.62 bln in the previous corresponding year. The group has declared an interim dividend of 16.0 sen per share, payable on 19th September 2018. (The Edge Daily)
  • United Plantations Bhd's 2Q2018 net profit narrowed 22.4% Y.o.Y to RM87.3 mln, from RM112.4 mln last year, intandem with weaker revenue, which fell 12.8% Y.o.Y to RM309.9 mln, from RM355.3 mln in 2Q2017.  Cumulative 1H2017 net profit also inched 1.9% Y.o.Y lower to RM187.8 mln, from RM191.3 mln a year earlier, while turnover weakened by 13.6% Y.o.Y to RM635.5 mln, compared with RM734.5 mln previously. (The Edge Daily)
  • Eastern and Oriental Bhd’s (E&O) 1QFY19 net profit decreased by 34.0% Y.o.Y to RM14.1 mln, from RM21.2 mln in the same quarter last year, despite higher revenue, mainly due to unrealised forex losses and losses from joint-ventures. Revenue for the quarter gained 15.3% Y.o.Y to RM200.0 mln, from RM173.4 mln. (The Edge Daily)
  • REX Industry Bhd is seeking shareholders’ approval to allow a share buy-back exercise of up to 10.0% of its issued share capital at the forthcoming annual general meeting. The exercise will enable REX to have an additional option to utilise its surplus financial resources. In addition, the purchased shares may be held as treasury shares and resold on Bursa Malaysia, with the intention of realising a potential gain without affecting the total issued shares of the company. (The Edge Daily)  

Source: Mplus Research - 21 Aug 2018

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