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

 

Mplus Market Pulse - May See Slight Uptick, But Mostly Sideways

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May See Slight Uptick, But Mostly Sideways

  • The FBM KLCI inched higher after delivering a late-session jump, boosted by bargain-hunting activities in selected heavyweights. The lower liners also rebounded – led by the FBM ACE (+1.2%), FBM Small Cap (+0.1%) and FBM Fledgling (+0.1%), while the broader market finished on a mixed note.
  • Market breadth was negative as decliners beat the advancers on a ratio of 355-to-416 stocks. Traded volumes, however, gained 5.9% to 2.17 bln shares amid rotational play in the lower liners.
  • Banking and energy heavyweights like Petronas Dagangan (+20.0 sen), Dialog (+4.0 sen), Public Bank (+6.0 sen) and RHB Bank (+5.0 sen) supported the gains on the key-index, alongside Tenaga Nasional (+12.0 sen). Broader market advancers, meanwhile, consists of MPI (+49.0 sen), Carlsberg (+46.0 sen), Unisem (+44.0 sen), KESM Industries (+20.0 sen) and United Plantations (+20.0 sen).
  • In contrast, worst broader market performers were Paragon Globe (-12.0 sen), Astro (-9.0 sen), Cahya Mata Sarawak (-9.0 sen), SMTrack (-8.5 sen) and Ajinomoto (-8.0 sen). Top five laggards on the FBM KLCI were Petronas Chemicals (-11.0 sen), mainly due to subdued petrochemical prices, together with Nestle (-10.0 sen), Hong Leong Financial Group (-6.0 sen), Kuala Lumpur Kepong (-6.0 sen) and Hartalega (-4.0 sen).
  • Japanese markets finished lower as the Nikkei (-0.2%) slipped into the red, weighed down by losses in consumer discretionary (-0.6%) and utilities (- 0.6%) sectors. The Hang Seng and the Shanghai Composite were closed for holidays, while ASEAN stockmarketsclosed mostly lower as investors closely monitor the global trade news ahead of the upcoming round of additional tariffs on Chinese imports amid ongoing U.S.- China trade tension.
  • Meanwhile, U.S. equities took a breather on Monday as investors book profits ahead of the U.S.-China trade negotiations on Thursday. The Dow (- 0.4%), S&P 500 (-0.5%) and the Nasdaq (- 0.3%) closed with minor losses after flitting in-and-out of the negative territory.
  • Major European benchmark markets ended on a positive note amid the ongoing Brexit saga. Both the FTSE and the CAC added 0.6%, while the DAX grew 0.7% despite the continuous decline in manufacturing activity following weakerthan-expected industrial orders last month.
     
  • THE DAY AHEAD

  • Malaysian stocks perked up as expected yesterday but even with the upsides, market conditions are still broadly unsettled as most market players are still adopting a wait-and-see attitude until Budget 2020 is presented at the end of the week.
  • In the interim, we see the key index remaining rangebound, hovering within the 1,550 and 1,570 levels as the buying interest continues to stay thin. There will still bouts of bargain hunting activities as some of industry leaders are already beaten down and could attract some mild fresh buying interest. However, we still think overall market conditions will remain muted in the absence of fresh catalysts.
  • While the key index stocks dithers, the lower liners and broader market sharesare seeing some revival as pockets of fresh buying are appearing, despite the lack of leads. Rotational plays are prevalent and this could spur further near term buying, particularly among technology stocks that is currently on a purple patch. However, with conditions already overbought, we think that further upsides could raise profit taking possibilities.

    COMPANY UPDATE

  • Econpile Holdings Bhd was awarded a contract worth RM20.8 mln to undertake works for a proposed commercial development in Subang Jaya. The 12 months duration contract is for earthworks, soil nailing works, piling and pilecap, as well as basement lowest floor slab works for the development, which comprises a commercial block with serviced apartments and small office/home office (SoHo), a seven-storey podium block and retail space. (The Edge Daily) Comments
  • The abovementioned contract marked Econpile’s first major orderbook replenishment in FY20, representing 3.8% of our orderbook replenishment assumption of RM550.0 mln for FY20. Moving forward, Econpile’s unbilled orderbook of approximately RM1.00 bln will provide earnings visibility over the next two years.
  • As the orderbook replenishment falls within our assumption, we made no changes to our earnings forecast. Consequently, we maintained our HOLD recommendation on Econpile with an unchanged target price at RM0.79. Our target price is derived by ascribing a target PER of 13.0x to its FY20 EPS of 6.1 sen.

OCK Group Bhd has proposed to raise up to RM62.5 mln via a private placement to fund its development and acquisition of green energy assets, as well as for working capital. The issue price has yet to be determined but will be issued based on a discount of not more than 10.0% to its five-day volume-weighted average market price, immediately preceding the price-fixing date.

  • Of the total, OCK has earmarked RM57.4 mln for the development and acquisition of green energy assets, RM5.0 mln for working capital and the remaining is for the estimated expenses for the exercise. (The Edge Daily) Comments
  • While the acquisition of green energy assets is expected to be earnings accretive, the new share issuance will result in dilution of OCK future earnings. Still, we maintain our BUY recommendation on OCK, but with a lower target price of RM0.66 (from RM0.71) as its earnings are largely preserved.
  • We adopt a sum-of-parts (SOP) approach as we valued its telecommunication network services and green energy & power solutions business segments on a discounted cash flow approach (key assumptions include a WACC of 9.0%, terminal growth rate of 1.5%) to reflect its ability to generate recurring revenues and steady earnings growth over the longer term.
  • Meanwhile, we ascribe a 13.0x target PER to both its fully-diluted trading and mechanical & electrical engineering services businesses, based on their potential earnings contribution in 2020.

COMPANY BRIEF

  • Ann Joo Resources Bhd and Southern Steel Bhd will set up a joint venture company to focus on their long product steel manufacturing businesses in a RM1.65 bln deal. The corporate exercise would see it selling its entire stakes in Ann Joo Integrated Steel Sdn Bhd, Ann Joo Steel Bhd and Saga Makmur Industri Sdn Bhd to the JV company for RM907.5 mln.
  • As for Southern Steel, it would dispose of Southern Steel Rod Sdn Bhd, Southern Steel Mesh Sdn Bhd, Southern PC Steel Sdn Bhd and Danstil Sdn Bhd to the JV company for RM742.5 mln.
  • Under the corporate exercise, the JV company will become a 55.0%-subsidiary of Ann Joo and a 45.0% associate of Southern Steel. (The Star Online)
  • Hibiscus Petroleum Bhd's indirect whollyowned subsidiary, Anasuria Hibiscus UK Ltd (AHUK) is acquiring more oil and gas rights from United Oil & Gas PLC and Swift Exploration Ltd for up to US$5.0 mln cash. The blocks include the Crown Discovery, which consists of 2C contingent resources that range between 4.0 mln and 8.0 mln barrels of oil. The blocks are located 12km south-east of Marigold oil field, which together with the Sunflower field, was acquired by AHUK in October 2018. (The Edge Daily)
  • MMC Corp Bhd's 70%-owned subsidiary, Pelabuhan Tanjung Pelepas Sdn Bhd (PTP) has withdrawn its RM31.9 mln lawsuit against Rising Star Shipping Sdn Bhd (RSS) — the beneficial owner of tanker MV Trident Star and The Shipowners' Mutual Protection and Indemnity Association (Luxembourg) Singapore branch (the Club).
  • MMC has reported that PTP has resolved the claim by settlement, thus discontinuing the legal proceedings against RSS and the Club. (The Edge Daily)
  • Trading of securities in YTL Land & Development Bhd will be suspended from next Monday (14th October 2019), being the expiry of five market days from the final closing date. This is as YTL Corp Bhd secured 90.5% of YTL Land, as at the close of its takeover offer on 7th October 2019. (The Edge Daily)
  • Priceworth International Bhd has signed a log supply agreement with a unit of Innoprise Corp Sdn Bhd, under which Priceworth will issue new shares to Innoprise, amounting to a 30.0% stake in the company, for logs supplied. With this, Priceworth will resume logging activities in the Yayasan Concession areas which will ensure a constant log supply for the Priceworth’s plywood and sawn timber mills. (The Edge Daily)
  • Malaysia Airports Holdings Bhd (MAHB) will seek the necessary legal advice after AirAsia Group Bhd and its longhaul affiliate AirAsia X Bhd (AAX) filed a lawsuit against the airport operator on 4th October 2019.
  • MAHB has confirmed that its whollyowned subsidiary, Malaysia Airports (Sepang) Sdn Bhd was served by the solicitors of AirAsia and AAX with a writ of summons, claiming RM479.8 mln for loss and damage allegedly caused by negligence at klia2. (The Edge Daily)

Source: Mplus Research - 8 Oct 2019

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