M+ Online Research Articles

Author: MalaccaSecurities   |   Latest post: Fri, 24 Jan 2020, 2:38 PM


Mplus Market Pulse - 17 Dec 2018

Author:   |    Publish date:

Downtrend Again

  • The FBM KLCI (-0.8%) snapped its previous winning streak and ended lower on Friday and also posted its weekly loss of 1.1% W.o.W, dragged down by weak Chinese economic data. The lower liners were hit as well, with the FBM Small Cap FBM Fledgling and FBM ACE in the red, while only the Property (+0.1%) and Utilities (+0.2%) sub-sectors outperformed the broader market.
  • Market breadth remained dour as losers beat winners on a ratio of 541-to-242 stocks. Traded volumes also narrowed further by 4.4% to 1.50 bln shares amid the risk-off sentiment.
  • Leading the blue-chip underperformers were Petronas-linked counters like Petronas Dagangan (-38.0 sen) and Petronas Gas (-26.0 sen), followed by Nestle (-RM1.30), Public Bank (-24.0 sen) and IHH Healthcare (-20.0 sen). Semiconductors-related companies like Vitrox (-36.0 sen) and Uchi Technologies (-21.0 sen) also weighed on the broader market, alongside BAT (-82.0 sen), United Plantations (-56.0 sen) and Padini (-22.0 sen).
  • On the flipside, Kian Joo Can (+60.0 sen) and Can-One (+21.0 sen) closed higher, following the latter’s mandatory general offer (MGO) for Kian Joo‘s shares. Other winners were Hong Leong Industries (+23.0 sen), UMS Holdings (+12.0 sen) and Box-Pax (+10.5 sen). Meanwhile, Genting (+5.0 sen), Maxis (+4.0 sen), Hap Seng Consolidated (+3.0 sen), MISC (+2.0 sen) and RHB Bank (+2.0 sen) outperformed the Main Market.
  • The sluggish performance on the Chinese stockmarkets weighed on regional equities after China’s latest industrial and retail economic data missed analysts’ expectations. The Shanghai Composite lost 1.5% on expectations of slower growth in 2019 as a result of China’s ongoing trade war with Washington. The Hang Seng also erased 1.6%, while the Nikkei closed down by 2.0%, with all, except the utilities sector, in the red. ASEAN stockmarkets were also mostly on the downside at Friday’s closing bell.
  • Wall Street recorded its second consecutive week of losses after it was painted red on Friday on weaker-thanexpected global economic data and a selldown in healthcare stocks – led by Johnson & Johnson. The Dow erased 2.0% to close slightly above the 24,100 psychological level, while Apple weighed on the S&P 500 (-1.9%) and the Nasdaq (- 2.3%) amid weaker sales outlook and the ongoing legal troubles due to alleged patents infringements.
  • European stockmarkets – the FTSE (- 0.5%), CAC (-0.9%) and DAX (-0.5%) were also downward pressured, hit by weakness in banking and mining stocks as investors digested soft Eurozone manufacturing data. Meanwhile, the economic slowdown in China also renewed fears of slower growth amid the ongoing trade conflicts.

The Day Ahead

  • After the Malaysian stockmarket succumbed to profit taking last Friday, we see further near term selling following the weakness in global stocks at the end of last week. This time, renewed concerns over the state of the global economy next year is likely to send Malaysian stocks lower at the start of the week.
  • As it is, there remains little interest and follow through buying to shore up the key index above the 1,700 points level last week, which remains a significant hurdle for the key index to clear. Most market players are still on the sidelines with the lack of positive leads for a sustainable upside, even after the FBM KLCI took a beating earlier. With the downside bias remaining, we think the key index could head back to the supports at 1,650 level as we expect the immediate support of 1,660 level to easily give way.
  • There also remains little reprieve for the lower lines and broader market shares as most retail players are still avoiding the market in the absence of new leads. This will send the lower liner indices deeper into oversold in the interim.

Company Update

  • V.S. Industry Bhd’s (VSI) 1QFY19 net profit narrowed 7.1% Y.o.Y to RM39.8 mln, from RM42.9 mln in the previous corresponding year, dragged down by a loss on disposal of a subsidiary (RM5.4 mln) and forex losses amounting to RM6.4 mln. Revenue, meanwhile, flatlined at RM1.08 bln (+0.4% Y.o.Y), compared to RM1.07 bln previously. VSI also declared a first interim dividend of 1.0 sen per share (1QFY18: 1.5 sen), payable on 12th March 2018.
  • The 1QFY19 earnings were disappointing, accounting to only 17.8% of our previous full-year estimated net profit of RM224.0 mln, while revenue accounted for 21.9% of our forecast. The variance was mainly due to weaker-than-expected performance in both its China and Malaysia operations, the former dragged down by a sizable restructuring cost (retrenchment costs).


  • We trimmed our FY19-FY20 net profit estimates by about 38.0% to RM138.7 mln and RM162.3 mln respectively, while revenue was reduced to RM3.66 bln (- 25.5%) and RM3.95 bln (-28.2%) after taking into account softer 2HFY19 outlook and beyond, following softer turnover and higher operational expenses.
  • We downgrade our call on VSI to HOLD (from Buy) with a lower target price of RM1.25 (from RM2.00 previously) as we continue to see earnings risk due to high operating costs and low manufacturing utilisation. The target price is arrived by ascribing an unchanged target PER of 17.0x to its revised FY19 diluted EPS of 7.2 sen. The ascribed target PER remains at a premium to its closest competitor, SKP Resources, which we believe is justified in view of the group’s leading position in Malaysia’s EMS industry. The premium is also accorded for its wide array of supply chain services and solid earnings track-record.


  • Berjaya Sports Toto Bhd’s (BToto) 2QFY19 net profit dropped 2.3% Y.o.Y to RM61.7 mln, mainly due to lower revenue reported by Sports Toto Malaysia Sdn Bhd and H.R. Owen Plc. Revenue for the quarter declined 2.3% Y.o.Y to RM1.35 bln.
  • For 1HFY19, cumulative net profit added 8.2% Y.o.Y to RM147.2 mln. Revenue for the period, however, fell marginally by 0.1% Y.o.Y to RM2.85 bln. A second interim dividend of four sen per share was declared. (The Star Online)
  • Gamuda Bhd’s 1QFY19 net profit declined 15.7% Y.o.Y to RM172.0 mln after it stopped recognising its share of earnings from water concessionaire Syarikat Pengeluar Air Sungai Selangor Sdn Bhd (Splash), coupled with lower contribution from its construction division, specifically the KVMRT Line 2 project and its property projects in Malaysia. Revenue for the quarter, however, added 17.3% Y.o.Y to RM903.9 mln. (The Star Online)
  • The Energy Commission has given its approval for Tenaga Nasional Bhd (TNB) to continue implementing the imbalance cost pass-through (ICPT) mechanism in 1H2019. However, the average base tariff would remain unchanged for the period from 1st January 2019 to 30th June 2019, despite the higher fuel and generation cost incurred for the period of 1st July 2018 until 31st December 2018.
  • The additional generation cost or imbalance cost was RM1.82 bln, mainly due to the increase in average coal price to US$97.84 per tonne, compared with the forecast coal price of US$75.00 per tonne set in the base tariff for Regulatory Period two (RP2) from 2018 to 2020. (Bernama)
  • Chemical Company of Malaysia Bhd (CCM) said that Indonesia's tax court has ruled in favour of its unit in its appeals over taxes imposed. Several tax adjustments were made by the tax auditor, amounting to 34.06 bln rupiah (RM9.8 mln) or 99.3% of the total appealed amount of 34.3 bln rupiah (RM9.9 mln). (The Edge Daily)
  • Mynews Holdings Bhd's 4QFY18 net profit gained 14.8% Y.o.Y to RM6.1 mln, on the back of higher number of outlets and business volume. Revenue for the quarter rose 21.0% Y.o.Y to RM109.3 mln.
  • For FY19, cumulative net profit added 10.3% Y.o.Y to RM26.5 mln. Revenue for the year increased Y.o.Y 19.5% Y.o.Y to RM391.5 mln. (The Edge Daily)
  • Sanichi Technology Bhd said it is unaware of the reasons for the recent sharp fall in price, as there are no corporate developments relating to the group's business and affairs that has not been previously announced that may account for the unusual market activity (UMA). Bursa Malaysia had slapped Sanichi with an UMA query after its share price hit an intraday record low of 7.5 sen. The counter's share price has declined 47.0% since 6th December 2018. (The Edge Daily)
  • D'nonce Technology Bhd said the requisition notice filed by its substantial shareholder Blackstream Investments Pte Ltd for an extraordinary general meeting to remove 10 of the group's directors has been rendered invalid.
  • The group said it has been advised by its solicitors on the ineffectiveness of the notice due to an interim order granted by the High Court, saying the interim order remains valid and in force unless the court directs otherwise. (The Edge Daily)
  • Sime Darby Plantation Bhd has appointed Mohamad Helmy Othman Basha as Deputy Managing Director (MD) from 1st January 2019. In his new role, Mohamad Helmy, who is currently the Chief Operating Officer of upstream, will understudy Sime Darby Plantation's incumbent Managing Director and Executive Deputy Chairman, Tan Sri Mohd Bakke Salleh who is retiring in June 2019. Apart from assisting the MD with the overall running of the group, Mohamad Helmy will continue to be responsible over the plantation upstream business. (The Edge Daily)
  • Tan Chong Motor Holdings Bhd said it is set to lose its right to import and distribute Nissan vehicles and parts in Vietnam with effect from 10th September 2019. Nissan Motor Co Ltd has issued a notice of termination of its joint venture agreement with Tan Chong's wholly-owned subsidiary, ETCM (V) Pte Ltd, without stating a reason. (The Edge Daily)
  • MCT Bhd's subsidiary, One City Sdn Bhd agrees with Attorney General Tommy Thomas's proposed solution to the Seafield temple issue, which includes the transfer of the land occupied by the temple to a trust. One City was supportive of the comprehensive settlement towards a peaceful and lasting resolution on the temple issue put forth by Thomas. (The Edge Daily)
  • YFG Bhd has received a termination letter from Atta Global Group Bhd to stop construction works for a RM40.0 mln project on Jalan Sultan Azlan Shah, Penang. The notice of termination was served owing to some legal and financial issues, which currently affect the progress and sub-contractor of the project on the part of Atta Properties. (The Edge Daily)
  • Nextgreen Global Bhd plans to raise up to RM32.8 mln in a private placement of its shares to investors to be identified later. The proposed private placement will entail the issuance of up to 65.7 mln new shares or 10.0% of its issued share capital, at 50 sen a share. (The Edge Daily)
  • Petronas Chemicals Group Bhd’s marketing unit has inked a deal to market methanol produced by a Sarawak state-owned company. Petronas Chemicals Marketing (Labuan) Ltd will act as the marketing arm for Sarawak Petchem Sdn Bhd for methanol from the latter's plant in Bintulu for 20 years, with the option for further extension. (The Edge Daily)
  • Sapura Energy Bhd has announced that its single largest shareholder, Tan Sri Shahril Shamsuddin, who is also the President and CEO, decided to put in an additional RM100.0 mln to subscribe in full for the rights issue with free warrants. Sapura Energy has received irrevocable undertaking from its direct substantial shareholder Sapura Technology Sdn Bhd (STSB) for RM400.0 mln worth of rights shares, and from Jurudata Sdn Bhd, which will also be applying for excess rights shares besides its entitlement.
  • This supersedes the letter of undertaking earlier, in which STSB had provided an irrevocable undertaking to subscribe to a minimum of RM300.0 mln worth of rights shares with warrants. On top of that, the company's other senior management have given their undertaking in writing for the cash call, which aims to raise RM4.00 bln at 30 sen per rights share. (The Edge Daily)  

Source: Mplus Research - 17 Dec 2018

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