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Author: MalaccaSecurities   |   Latest post: Mon, 18 Mar 2019, 11:10 AM

 

Mplus Market Pulse - 19 Dec 2018

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Selling May Subside

  • The FBM KLCI fell another 0.4% on extended profit-taking activities in selected heavyweights and fears of rising U.S. interest rates. All the lower liners also tumbled – led by the FBM Small Cap (-3.0%), together with all twelve subsectors on the broader market.
  • Market breadth was still depressed as losers beat gainers on a ratio of 699-to- 222 stocks. Traded volumes, however, jumped 54.2% to 2.27 bln shares following the extended weakness in global equities amid the risk-off sentiment.
  • Among the Main Board losers were Petronas Gas (-26.0 sen), Tenaga Nasional (-22.0 sen), Sime Darby Plantation (-21.0 sen), Hong Leong Financial Group (-16.0 sen) and IHH Healthcare (-16.0 sen). Other underperformers include Dutch Lady (-70.0 sen), Heineken Malaysia (-36.0 sen), Panasonic Manufacturing (-36.0 sen) and KESM Industries (-28.0 sen). Hai-O (-34.0 sen) also declined after reporting weak quarterly results due to slower MLM sales.
  • On the opposite side of the trade, BLD Plantation (+32.0 sen), Transocean (+30.0 sen), Carlsberg (+26.0 sen), Rapid Synergy (+16.0 sen) and Litrak (+15.0 sen) led the broader market higher. Keyindex advancers, meanwhile, include Nestle (+80.0 sen), Petronas Dagangan (+22.0 sen), Malaysia Airports (+20.0 sen), Digi (+19.0 sen) and MISC (+11.0 sen).
  • Major regional bourses closed in the red due to the prevailing negative sentiment spilled over from Wall Street overnight as expectations of higher U.S. interest rates heightened. The Nikkei dropped 1.8% after Japan trimmed its current year and2019 GDP forecast on softer growth prospects worldwide. Meanwhile, investors are closely monitoring President Xi Jinping’s speech at China’s 40th Anniversary conference for hints of potential easing of trade tensions. Consequently, the Shanghai Composite and the Hang Seng rose 0.8% and 1.1% respectively, alongside the majority of ASEAN stockmarkets.
  • Key U.S. equity benchmarks rebounded on Tuesday after two sessions’ of steep losses, mostly driven by bargain-hunting activities although crude oil prices remained southbound amid rising stockpiles and potentially weaker demand outlook. The Dow rose 0.4%, lifted by Boeing on expectations of a sizable share buy-back exercise and the Nasdaq recovered 0.5%. The S&P 500, meanwhile, flatlined after a volatile session.
  • European stockmarkets were mostly in the red against a background of heightened political risk, economic growth uncertainties and falling energy prices. The FTSE fell 1.1% to 6,701.6 points, although gains in retailers stemmed further downside. The DAX and the CAC also closed 0.3% and 1.0% lower respectively ahead of the U.S. Federal Reserve meeting on Wednesday.

THE DAY AHEAD

  • The continuing malaise on Bursa Malaysia has sent the FBM KLCI to yet another two-year low yesterday with few signs of a rebound from oversold. The combination of lower economic growth prognosis by the World Bank on the Malaysian economy, coupled with the sliding oil prices, will continue to weigh on sentiments for longer.
  • Although there are still no signs of arecovery as yet, we think the selling may abate as global equities are finding some support which could help stocks on Bursa Malaysia to also find some measure of stability after its recent falls. This could allow the key index to start finding a base around the 1,630-1,640 levels, albeit the buying interest could still be thin amid the continuing wariness over the current stockmarket conditions. The other support and resistance levels are at 1,620 and 1,650 respectively.
  • We also think that the stocks in the FBM Small Cap, ACE Market and Fledgling indices are also due for a recovery from their deeply oversold conditions. However, any reprieve is seen to be temporary as there are still little buying interest from retail players due to the weak market sentiments. Therefore, any rebound is likely to be mild for now.

COMPANY UPDATE

  • Comfort Gloves Bhd’s (CGB) 3QFY19 net profit fell 40.6% Y.o.Y to RM7.1mln, from RM11.9 mln previously, largely driven by higher selling and marketing as well as administrative expense. Revenue, however, improved 19.2% Y.o.Y owing to the stronger USD against the Ringgit.
  • Cumulative 9MFY19 net profit also tanked 40.5% Y.o.Y to RM18.5 mln, from RM31.1 mln in the same period last year, despite a 9.1% Y.o.Y growth in revenue to RM343.3 mln vs. RM314.8 mln in 9MFY18. The weakness in its bottomline is mainly due to the one-off logistics expense in 2QFY19 and higher tax charges.
  • The group’s performance was broadlywithin our expectations as net profit accounted for 72.1% of our estimated net profit of RM25.7 mln, while revenue made up 78.8% of our full-year forecast. We leave our forecast unchanged.
  • We maintain our BUY recommendation on CGB with an unchanged target price of RM1.10 by ascribing an unchanged PER of 18.0x to its FY20 EPS of 6.1 sen as the group’s growth prospects remains positive, underpinned by the recovery in its bottomline, stronger margins outlook and ongoing capacity expansion that will support sales growth.
  • The ascribed target PER remain 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.
  • Downside risks to our call include sudden spikes in rubber prices, appreciation in the Ringgit and oversupply in the rubber gloves industry which could dampen ASPs.

COMPANY BRIEF

  • ASP The Securities Commission (SC) is maintaining its decision to reprimand and impose penalties of RM2.2 mln on Lotte Chemical Titan Holdings Bhd (LCT) and other relevant parties. The SC said that the parties reprimanded were LCT, the issuer; Lee Dong Woo and Lee Kwan Ho, who are LCT’s Executive Directors, Ernst & Young (EY), LCT’s reporting accountant and Maybank Investment Bank Bhd, the principal adviser to LCT’s listing exercise.
  • The reprimand and penalties imposed on 8th July 2018 were for their failure to inform the SC of material developments prior to LCT’s listing in 2017. In addition, the SC also reprimanded and fined Maybank IB for its failure to carry out appropriate due diligence on LCT. The SC also maintained its directive for EY and Maybank IB to conduct a comprehensive review and assessment of their policies and processes related to their roles as reporting accountant and principal adviser respectively. (The Star Online)
  • Apex Equity Holdings Bhd, the parent of JF Apex Securities Bhd (JF Apex) and Mercury Securities Sdn Bhd (Mercury) has entered into an agreement to merge their stockbroking operations. Mercury had agreed to transfer its entire business comprising stockbroking and corporate advisory, together with the requisite business assets and business liabilities, into JF Apex for RM140.0 mln.
  • Apex also entered into subscription agreements for a proposed private placement of 20.0 mln placement shares, representing about 10.0% of Apex's issued share capital at the subscription price of 94 sen each. The company will use the gross proceeds of RM18.8 mln to part finance the RM48.0 mln cash portion of the consideration. Apex will settle the rest of the payment to Mercury, amounting to RM92.0 mln, by issuing 100.0 mln new Apex shares at 92 sen each. After the merger, Mercury will end up with about 31.0% equity interest of Apex's enlarged share capital (excluding treasury shares).
  • The proposed merger would enable Apexto gain an immediate access to the corporate advisory business tapping on the track record, capacity and capabilities of Mercury Securities' corporate finance team. JF Apex can also capitalise on cross-selling opportunities for its corporate clients who require corporate advisory services to further improve its fee-based income. (Bernama)
  • FGV Holdings Bhd (FGV) has signed a MoU with Hong Kong-listed China Machinery Engineering Corporation (CMEC) to explore the feasibility of a joint venture for the establishment of paper pulp production facilities. FGV will explore the opportunity to integrate operations of its existing mills with CMEC’s engineering expertise to establish the paper pulp production facilities with an initial capacity of 50,000 tonne per annum in the first phase. (The Edge Daily)
  • Telekom Malaysia Bhd has, to date, upgraded close to 60.0% out of over 340,000 Streamyx customers' highspeed Internet packages in UniFicoverage areas to UniFi at the same price of their current plans, to widen the nation's broadband coverage. (The Edge Daily)
  • CIMB Group Holdings Bhd has applied for an injunction to restrain PLUS Malaysia Bhd from using the PLUS Radio Frequency Identification (RFID) system for toll transactions on all Malaysian highway systems. It is also seeking to prevent PLUS from carrying out any sales or marketing activities to secure customers from purchasing or using the PLUS RFID System.Meanwhile, it is also seeking to prevent PLUS from interfering in the sales and promotion conducted by Touch 'N Go Sdn Bhd for the Touch 'N Go RFID system.
  • Separately, CIMB expects to record a gain on disposal of RM200.0 mln from the proposed transfer of its stockbroking business to Jupiter Securities Sdn Bhd. CIMB Group Sdn Bhd, China Galaxy International Financial Holdings Ltd and CGS-CIMB Holdings Sdn Bhd has signed a share subscription agreement for the subscription of new shares in CGSCIMB. (The Edge Daily)
  • Malaysia Airports Holdings Bhd (MAHB) expects the passenger movement at KLIA and klia2 to surge by 12.0% and 21.0% respectively in December 2018, which is considered a super-peak travel period. The airport operator projected a total of 6.9 mln passengers travelling via the two terminals during the yearend school holidays and Christmas festive season. (The Edge Daily)
  • Transocean Holdings Bhd has signed a Heads of Agreement with certain shareholders of logistics company Swift Haulage Sdn Bhd with a view to acquire the entire equity interest in Swift for not less than RM750.0 mln. (The Edge Daily)
  • Crescendo Corporation Bhd is buying a piece of land in Johor Bahru for RM13.0 mln to develop apartments for rent to Crescendo International College students. The acquisition expected to contribute and supplement the longterm profitability of the core businessactivities of the group which are in property development and building construction. (The Edge Daily)
  • The major shareholder of Prestariang Bhd, Dr Abu Hasan Ismail, has disposed of entire his stake and has ceased to be a substantial shareholder in the company. Abu Hassan, who is the group’s president and Chief Executive Officer, sold 117.2 mln shares or 24.3% stake on 14th December 2018. He was forced to sell the shares via a direct business transaction to rectify a personal margin position. (The Edge Daily)

Source: Mplus Research - 19 Dec 2018

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