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Author: MalaccaSecurities   |   Latest post: Wed, 29 Jan 2020, 10:33 AM

 

Mplus Market Pulse - 10 Dec 2019

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Not Seeing Increased Following Yet

  • The FBM KLCI closed in the red, dragged down by the weakness in Tenaga and Petronas-related shares, although the lower liners shrugged off the negative sentiment on the key-index and finished stronger – led by the FBM Small Cap (+0.8%). The broader market, however, were mostly lackluster.
  • Market breadth was negative as decliners overtook the advancers on a ratio of 462-to-406 stocks. Trade volumes, however, gained 4.9% to 2.62 bln shares amid the rotational play in the lower liners.
  • Petronas Gas (-20.0 sen) and Petronas Dagangan (-18.0 sen) closed in the red, following portfolio rebalancing activities by its major shareholder, Petroliam Nasional. Tenaga Nasional (-20.0 sen), Public Bank (-14.0 sen) and Malaysia Airports (-11.0 sen) also underperformed its peers, while broader market losers include Sungei Bagan Rubber (-21.0 sen), Heineken Malaysia (- 20.0 sen), Ajinomoto (-12.0 sen), Latitude Tree (-12.0 sen) and LPI Capital (-12.0 sen).
  • On the contrary, broader market charttoppers include Batu Kawan (+30.0 sen), Carlsberg (+28.0 sen), Shangri-La Hotels (+28.0 sen), Genting Plantations (+20.0 sen) and Dutch Lady (+16.0 sen). Nestle (+70.0 sen), Kuala Lumpur Kepong (+66.0 sen), Hong Leong Financial Group (+10.0 sen), PBB Group (+8.0 sen) and Maybank (+6.0 sen) dominated the Main Board advancers list.
  • Chinese equities were mostly splashed in red, albeit the Shanghai Composite inched higher after the blue-chip gauge gave up most of its earlier gains, tracking softer China exports data. The Nikkei (+0.3%), however, closed with meager gains, while the Hang Seng Index slid below the breakeven level, alongside the majority of the ASEAN sharemarkets.
  • Meanwhile, major U.S. benchmark bourses also took a breather from its recent run, ahead of the mid-December deadline for increased tariffs on Chinese imports. Consequently, the Dow (-0.4%), the S&P500 (-0.3%) and the Nasdaq (- 0.4%) retreated, dragged down by losses in tech giant Apple.
  • European equities declined, weighed down by renewed concerns of weakening global growth after Chinese exports fell for the fourth-straight month in November. The FTSE, the DAX and the CAC closed lower by 0.1%, 0.5% and 0.6% respectively.

The Day Ahead

  • Malaysian stocks continue to decouple from the positive performance on many overseas bourses amid the lack of catalysts that is seeing more market players retreating to the sidelines, particularly foreigners that continue to be net sellers.
  • With market conditions among the index heavyweights staying subdued, we think that they will continue to drift further over the near term as the buying interest is still too faint to provide the impetus for a firm near term recovery.
  • Apart from the lack of fresh buying, the selling pressure is also still prevalent that could leave the key index downcast for longer. Consequently, we see the key index maintaining its drifting trend between the 1,560 and 1,567 levels for longer. The other support and resistance levels are at 1,556 and 1,570 respectively.
  • It is still a contrast among the lower liners and broader market shares as bouts of rotational plays are helping to shore up indices like the FBM Small Cap, FBM ACE and Technology indices. We think that these plays will continue that will also see these indices making a pass on their respective recent highs again over the near term.

Company Update

  • Protasco Bhd's 30%-owned associate company, PJP Barisan HCM JV Sdn Bhd has secured a ten-year contract from the Public Works Department. The performance-based contract for the longterm management and maintenance of state roads in Sarawak, Package 3 (Mukah Division) will be effective from 1st January 2020 until 31st December 2029. The contract, worth approximately RM24.6 mln per annum, is subject to review every three years with a maximum increase of 7.2% per revision. (The Star Online)

Comments

  • We are positive on the abovementioned contract win, underlying Protasco as one of the road maintenance specialist in Malaysia. With 30% equity stake and assuming 9.0% pre-tax margin, the aforementioned contract will generate additional RM0.7 mln pre-tax profit per annum for the group over the next three years and potentially a higher value in subsequently years, subject to review of the contract.
  • Consequently, we revised our earnings forecast upward by 13.6% and 12.2% to RM10.4 mln and RM15.9 mln for 2020 and 2021 respectively. Following the earnings revision, we also upgrade our recommendation on Protasco to HOLD (from Sell) with a higher target price of RM0.35 (from RM0.33).
  • We arrive our target price on a sum-ofparts basis by ascribing an unchanged target PER of 8.0x to its 2020 fully diluted construction earnings as well as a target PER of 8.0x (unchanged) to its fully diluted 2020 concession and engineering services’ earnings. Its education and trading units’ valuations remain pegged at target PERs of 6.0x respectively due to its smaller scale businesses, while its property development division’s valuation is derived from ascribing an unchanged 0.6x to its BV.

COMPANY BRIEF

  • Texchem Resources Bhd will close down unprofitable Sushi King outlets in the country in 2020. The unprofitable outlets were mainly located in shopping malls that imposed high rentals. There are 137 Sushi King restaurants in the country, which includes 25 outlets in Sabah and Sarawak. (The Star Online)
  • Perdana Petroleum Bhd has bagged two work orders from Petronas Carigali Sdn Bhd for the provision of two anchor handling tug and supply (AHTS) vessels for RM36.0 mln. It’s wholly-owned unit, Perdana Nautika Sdn Bhd (PNSB) received the two one-year work orders, with an estimated contract value of RM18.0 mln each.
  • PNSB shall provide the AHTS vessels with crews and equipment to perform 24- hour services for assisting and/or servicing drilling rigs, offshore installation, derrick barges, towing and anchor jobs. (The Edge Daily)
  • Petronas has successfully completed block trades of its shares in MISC Bhd, Petronas Dagangan Bhd (PetDag) and Petronas Gas Bhd (PetGas), with the shares sold to Malaysian institutional funds. The trades were carried out as part of its portfolio management strategy and that the sale of shares would also allow for more local participation and ownership in the companies.
  • While it did not reveal details of the sale of shares, Petronas has raised about RM6.00 bln from cutting its stakes in the companies and the group is raising capital to fund overseas expansion, noting it intends to allocate a larger share of its future capex to projects in the Americas. (The Edge Daily)
  • MTAG Group Bhd is buying two pieces of freehold industrial land that spans 12.1 ac.in Plentong, Johor, for RM24.6 mln. MTAG’s Managing Director, Chaw Kam Shiang granted an option to purchase the two plots from Brilliant Propel Sdn Bhd and Chaw has agreed to assign all his rights under the option to MTAG.
  • The sale and purchase agreement for the proposed acquisition is expected to be completed before the expiry of option on 31st March 2020. (The Edge Daily)
  • IHH Healthcare Bhd’s non-interested shareholders and proxies have voted 99.99% in favour of the proposed RM1.02 bln acquisition of Prince Court Medical Centre from Khazanah Nasional Bhd. IHH expects the acquisition to be completed in 1Q2020. (The Edge Daily)
  • FGV Holdings Bhd has reported that it is unaware of any proposals and discussions about tycoon Tan Sri Syed Mokhtar Al-Bukhary buying a stake in the plantation group. FGV was referring to media reports that said Syed Mokhtar was taking up a stake in the company. (The Edge Daily)  

Source: Mplus Research - 10 Dec 2019

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