M+ Online Research Articles

Author: MalaccaSecurities   |   Latest post: Fri, 23 Oct 2020, 9:24 AM


Mplus Market Pulse - 22 Nov 2019

Author:   |    Publish date:

Downside Bias Remains

  • The FBM KLCI (-0.6%) took another beating as the key index slipped below the 1,600 psychological level, taking cue from the weakness on Wall Street overnight. The lower liners – the FBM Small Cap (-0.2%), FBM Fledgling (- 0.1%) and FBM ACE (-1.2% all retreated, while the broader market closed mostly lower with the exception of Plantation (+0.8) and transportation & logistics (+0.1%) sectors.
  • Market breadth turned negative as decliners outshone advancers on a ratio of 552-to-320 stocks, while 381 stocks traded unchanged. Traded volumes gained 0.8% to 2.93 bln shares as selling activities escalated.
  • Petronas Dagangan (-58.0 sen) led the local bourse decliners list, followed by Nestle (-40.0 sen), Petronas Gas (-32.0 sen), Petronas Chemicals (-20.0 sen) and Tenaga (-18.0 sen). Notable losers on the broader market include Dutch Lady (-42.0 sen), Hong Leong Industries (-20.0 sen), MBM Resources (-20.0 sen), Panasonic (-18.0 sen) and Fraser & Neave (-16.0 sen).
  • Among the biggest winners on the broader market include plantation stocks like Sarawak Oil Palm (+36.0 sen), Genting Plantations (+32.0 sen), Ta Ann (+32.0 sen) and Hap Seng Plantation (+8.0 sen), while Heineken added 40.0 sen. On the local bourse, KLK (+10.0 sen), IOI Corporation (+4.0 sen), PBB Group (+4.0 sen), DIGI (+2.0 sen) and Press Metal (+2.0 sen) advanced.
  • Asia’s benchmark indices extended their losses, dragged down by the renewed trade uncertainty between the U.S. and China. The Nikkei (-0.5%) trended lower for the third straight session, while the Hang Seng Index and Shanghai Composite fell 1.6% and 0.3% respectively. ASEAN stockmarkets, meanwhile, were painted in red on Thursday.
  • U.S. stockmarkets trended lower for the third straight session on the lingering uncertainties over the Sino-U.S. trade progress as the Dow declined 0.2%. On the broader market, both the S&P 500 and Nasdaq fell 0.2% each after lingering in the negative territory for the entire trading session.
  • Major European indices – the FTSE (- 0.3%), CAC (-0.2%) and DAX (-0.2%) all extended their losses, taking cue from the weakness across global equities. Market sentiment continues to be dampened by the uncertainties over the U.S.-China trade progress.

  • Although the key index remains within our expected range of between the 1,590 and 1,610 levels, conditions are turning weaker amid the increased selling activities over the past two sessions that has left the key index’s technical indicators tipping down and looking to retreat further from its toppish condition.
  • We continue to think that the pullback is healthy as it would allow the key index to take a breather from its recent gains from the mild portfolio reshuffling activities. At the same time, it also appears that the 1,600-1,620 levels are becoming a hurdle for the key index to clear due to the lack of sustainable following.
  • The conflicting progress reports on a preliminary U.S-China trade deal is also leaving the market directionless that looks to continue for now. As a consequence, we see the downside risk persisting for now that may even see the key index breaching the 1,590 support to end the week. If so, the FBM KLCI could head back to the 1,585-1,587 support, before the 1,580 support comes into play. The resistances, meanwhile, remain at the 1,600 and 1,610 levels.
  • The lower liners and broader market shares, although many have weakened yesterday, remain mostly in a sideway consolidation trend. With the selling still controlled, coupled with few leads, we think that the broadly sideway trend is likely to continue, albeit there are still pockets of downside bias remaining for now.

  • OCK Group Bhd’s 3Q2019 net profit rose 9.0% Y.o.Y to RM8.5 mln, boosted by: (i) improved earnings from the green energy & power solution, mechanical & electrical engineering services and trading segment, (ii) lower tax expenses, and (iii) lower non-controlling interests. Revenue for the quarter increased 19.4% Y.o.Y to RM131.1 mln.
  • For 9M2019, cumulative net profit grew 21.5% Y.o.Y to RM20.8 mln. Revenue for the period improved 8.5% Y.o.Y to RM350.4 mln.

  • The reported earnings make up to 73.0% of our net profit forecast of RM28.5 mln for 2019. The reported revenue amounted to 70.2% of our estimated 2019 revenue of RM499.2 mln.
  • Although both the reported earnings and revenue came slightly below the 75.0% threshold, we deem the figures to be in line as the final quarter numbers are seasonally stronger. Consequently, we maintain our BUY recommendation on OCK with an unchanged target price of RM0.75.
  • We adopt a sum-of-parts (SOP) approach to arrive at our target price 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 9.5%, terminal growth rate of 1.5%) to reflect its ability to generate recurring revenues and steady earnings growth over the longer term.
  • Meanwhile, we ascribed an unchanged target PER of 13.0x to both its fullydiluted trading and mechanical & electrical engineering services businesses, based on their potential earnings contribution in 2020.
  • Teo Seng Capital Bhd (TSCB) has signed a Memorandum of Agreement (MoA) with Solarvest Holdings Berhad to install solar PV panel across TSCB chicken farms and factories located in the state of Johor, Malaysia. Teo Seng has earmarked a capital expenditure of approximately RM13.0 mln for installing of about 4,000 kWp (kilowattpeak) rooftop solar projects.

  • We reckon that the move bodes well for TSCB that would potentially result in costing saving of approximately 1%-2% per annum in operational expenses over the long run. In the meantime, the move is also in line with the government’s initiative to encourage the adoption of green energy, outlined under Budget 2020.
  • As the agreement has yet to take effect until the completion over the next 12 months, we made no changes to our earnings forecast for now. We maintain our BUY recommendation on Teo Seng with an unchanged target price of RM1.65. We arrive our target price by ascribing an unchanged target PER of 8.0x to its 2020 EPS of 20.6 sen. The ascribed target PER is at a 25% discount to its peers average valuation of 10.7x, due to due to Teo Seng’s smaller market capitalisation against poultry giants like Leong Hup International Bhd and QL Resources Bhd.

  • Sunway Bhd’s 3Q2019 net profit climbed 27.0% Y.o.Y to RM183.4 mln, compare to RM144.9 mln last year, on the back of higher contributions from its property development, property investment and quarry segments. Revenue, however, fell 13.0% Y.o.Y to RM1.23 bln, from RM1.42 bln in the preivous corresponding period.
  • Subsequently, 9M2019 net profit rose 22.0% Y.o.Y to RM566.3 mln, despite revenue falling 13.0% Y.o.Y to RM3.43 bln in 9M2018. (The Star Online)
  • Hap Seng Consolidated Bhd’s 3Q2019 net profit inched higher by 1.3% Y.o.Y to RM193.1 mln, from RM190.7 mln earlier, in-line with the stronger revenue performance of RM1.83 bln (+3.6% Y.o.Y), from RM1.76 bln last year. The group also declared a second interim dividend of 20.0 sen per share, payable on 18th December 2019.
  • For its nine-month period, however, net profit halved to RM480.9 mln, from RM989.4 mln a year ago, even as revenue grew 10.4% Y.o.Y to RM5.32 bln, from RM4.82 bln previously. (The Edge Daily)
  • Boustead Plantations Bhd sank deeper into the red in 3Q2019 with a net loss of RM34.3 mln (- 56.6% Y.o.Y), from RM21.9 mln previously, mainly due to higher amortisation and finance costs, despite stronger revenue (+6.0% Y.o.Y) of RM139.2 mln, from RM131.1 mln previously.
  • On a cumulative basis, however, the group made a turnaround with a 9M2019 net profit of RM28.7 mln compared to a net loss of RM38.9 mln a year ago, although revenue fell 7.0% Y.o.Y to RM398.1 mln, from RM427.5 mln last year. (The Star Online)
  • Malaysian Resources Corp Bhd’s (MRCB) 3Q2019 net profit plunged 87.3% Y.o.Y to RM2.5 mln, from RM19.8 mln last year, largely due to the delay in the Light Rail Transit (LRT) 3 project and the inclusion of a one-off divestment gain in the previous corresponding period. Revenue also fell 43.8% Y.o.Y to RM372.7 mln, from RM663.8 mln in the last corresponding year.
  • Consequently, cumulative 9M2019 net profit plummeted 76.3% Y.o.Y to RM17.7 mln, from RM74.8 mln, while revenue weakened to RM847.8 mln (- 43.4% Y.o.Y), from RM1.50 bln earlier. (The Edge Daily)
  • Kossan Rubber Industries Bhd’s 3Q2019 net profit slipped 9.2% Y.o.Y to RM49.2 mln, compared to RM54.2 mln last year, weighed down by lower ASPs and higher natural gas costs. Revenue for the quarter also dipped 7.4% Y.o.Y to RM531.3 mln, from RM573.9 mln earlier.
  • Cumulative 9M2019 net profit, however, rose 15.9% Y.o.Y to RM163.8 mln, from RM141.3 mln a year ago, while revenue was 5.7% Y.o.Y higher at RM1.64 bln, from RM1.55 bln in 9MFY18. (The Edge Daily)
  • Wah Seong Corporation Bhd’s 3Q2019 net profit narrowed 38.0% Y.o.Y to RM15.3 mln, from RM24.5 mln in the third quarter of 2018, as revenue fell 8.0% Y.o.Y to RM644.5 mln, from RM701.9 mln previously.
  • Its cumulative nine-month net profit also saw a 27.0% Y.o.Y decline to RM54.7 mln, from RM74.8 mln a year ago, as revenue lost 7.5% Y.o.Y to RM2.09 bln, from RM2.25 bln in the previous corresponding period. (The Star Online)
  • Revenue Group Bhd's 1QFY20 net profit jumped 54.0% Y.o.Y to RM3.0 mln, in comparison to RM1.9 mln previously, boosted by higher income from the rental of its electronic data capture or EDC terminals, higher electronic transaction processing income and the inclusion of revenue contribution from two newly acquired subsidiaries, Anypay Sdn Bhd and Buymall Services Sdn Bhd.
  • Quarterly revenue also expanded 12.0% Y.o.Y to RM16.7 mln, from RM14.8 mln in the previous year. (The Edge Daily)
  • Hibiscus Petroleum Bhd's 1QFY20 net profit was down by 83.8% Y.o.Y to RM16.2 mln, from RM100.0 mln last year, following lower contributions across all three of its operations in Sabah, North Sea's Anasuria Cluster, and Australia. Revenue also shed more than 50.0% Y.o.Y to RM159.3 mln, from RM356.0 mln in the same period in FY19.
  • Southern Steel Bhd posted a 1QFY20 net loss of RM45.6 mln, dragged by lower sales volume and selling prices, while revenue tanked 30.0% Y.o.Y to RM653.7 mln, from RM929.0 mln earlier.

Source: Mplus Research - 22 Nov 2019

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