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Author: MalaccaSecurities   |   Latest post: Thu, 14 Nov 2019, 9:36 AM

 

Mplus Market Pulse - 26 Jun 2019

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Toppish Conditions Prevail

  • The FBM KLCI shrugged off the negative sentiment in global stockmarkets, buoyed by last-minute buying support in selected heavyweights. The lower liners also struggled to stay afloat, with the exception of the FBM Ace (+0.6%) index. Meanwhile, on the broader market, the majority of the sectors closed positively – led by the Construction (+0.8%) sector.
  • Market breadth was downbeat as decliners outweighed the advancers on a ratio of 413-to-364 stocks, while traded volumes fell slightly by 1.2% to 1.78 bln shares due to the lack of fresh leads.
  • Blue-chip heavyweights like Nestle (+40.0 sen), Tenaga Nasional (+20.0 sen), Malaysia Airports (+6.0 sen), CIMB (+6.0 sen) and IOI Corporation (+6.0 sen) supported the key-index, while other broader market advancers were consumer products-related companies like Nestle (+40.0 sen), Panasonic Manufacturing (+34.0 sen) and Dutch Lady (+20.0 sen), followed by BAT (+46.0 sen) and Malaysian Pacific Industries (+26.0 sen).
  • On the flipside, Allianz (-20.0 sen), Rapid Synergy (-12.0 sen), Sarawak Plantation (-11.0 sen), Heineken Malaysia (-10.0 sen) and UMW Holdings (-10.0 sen) retreated. Genting affiliated stocks like Genting (-13.0 sen) and Genting Malaysia (-9.0 sen) were amongst the worst performers on the key-index, alongside Hong Leong Bank (-42.0 sen), Petronas Chemicals (-7.0 sen) and RHB Bank (-7.0 sen)
  • Most Asian stockmarkets tumbled as investors fled risky asset in exchange for safe haven assets amid heightened geopolitical conflicts like gold, boosting the bullion to a fresh six-year high. Main regional indices - the Nikkei (-0.4%), the Hang Seng index (-1.2%) and the Shanghai Composite (-0.9%) retreated, alongside the majority of the ASEAN equities.
  • U.S. stockmarkets remain downtrodden as major indices like the Dow (-0.7%), the S&P 500 (-1.0%) and the Nasdaq (-1.5%). took a beating on Tuesday, fuelled by rising trade protectionism and geopolitical uncertainties between the U.S. and its allies.
  • Earlier, key European benchmark indices finished mostly lower amid rising Middle East tensions following the imposition of new sanctions on Iran by the U.S. The DAX and the CAC was lower by 0.4% and 0.1% respectively, although the FTSE bucked the general sentiment and closed with meagre gains.

THE DAY AHEAD

  • After yesterday’s indifferent closing, the FBM KLCI remains toppish and we continue to think that a pullback is overdue after the near 100 points gain over the past month. We maintain our view that the upsides were already overdone as there is little change to the corporate Malaysia’s fundamentals that also led to the valuation perching at the top end of its historical forward averages.
  • At the same time, there are also few noteworthy leads for market players to follow with attention shifting to the upcoming meeting of the Presidents of the U.S. and China to see if there is progress in their trade negotiations. Domestically, there are also few buying impetus with institutions continuing to provide support to selected index-linked stocks, while the broader market is seeing reduced following amid the lack of positive leads.
  • Hence, we continue to think the FBM KLCI is set for further consolidation over the near term with the 1,670-1,672 levels the immediate support, followed by the 1,660 level. The resistances are at 1,682 and 1,689 respectively.
  • Elsewhere, conditions remain mostly cautious that is also seeing many retail players remaining on the sidelines. As a consequence, investor participation is also thinning and this is likely to prolong the mixed-to-lower trend among the lower liners.

COMPANY UPDATE

  • V.S. Industry Bhd’s (VSI) 3QFY19 net profit jumped 43.1% Y.o.Y to RM31.4 mln, from RM21.9 mln in the same period last year - led by improvements in the local business, in-tandem with increased floor utilisation, lower operating costs and higher sales. However, the losses from China’s operations continue to weigh on the group net profit due to underutilisation. Revenue was marginally higher at RM889.7 mln (+0.9% Y.o.Y), compared to RM881.6 mln in 3QFY18.
  • Cumulative 9MFY19 net profit was flattish at RM109.1 mln, against RM109.0 mln previously, although revenue fell 4.1% Y.o.Y to RM2.95 bln, from RM3.07 bln a year ago. The stronger sales from the Malaysian segment were offset by higher losses incurred from the export segments, mainly China and Indonesia. The group has also declared a third interim dividend of 0.8 sen per share, payable on 31st July 2019. We noted that the YTD dividend declared stands at 2.8 sen, compared to 3.5 sen a share in the same period last year.

Comment

  • We leave our forecasts unchanged as the reported results were within our expectations. The 9MFY19 net profit accounted for 80.3% of our full-year forecast, while revenue came in at 76.1% of our FY19 estimates.
  • Meanwhile, we continue to see a weaker final quarter due to weaker export earnings and potential year-end impairments amid the global trade uncertainties and a general slowdown in demand.
  • Nevertheless, we maintain our BUY recommendation on VSI with a higher target price of RM1.25 (from RM1.20) as we rolled-forward our valuation to FY20. We retain our call as we remain cautiously optimistic of VSI’s longer-term outlook, which will be driven by increased efficiency, better product mix and higher sales orders. Our target price is derived by ascribing to a lower target PER of 14.0x (from 16.0x) to its FY20 EPS of 8.9 sen, while the lower target PER is partly due to weaker EMS outlook as major EMS players globally face lower demand amid rising trade protectionism.
  • However, the target PER remains at a premium to its closest competitor, SKP Resources Bhd after taking account the group’s leading position in Malaysia’s EMS industry that is strengthened by its wide array of supply chain services and solid earnings track-record.

COMPANY BRIEF

  • FGV Holdings Bhd said major shareholders, Federal Land Development Authority (Felda), Koperasi Permodalan Felda Malaysia Bhd and the Armed Forces Fund Board have voted against several resolutions on FGV directors' remuneration at the group's annual general meeting (AGM).
  • Another FGV major shareholder, the Employees Provident Fund (EPF), had also raised remuneration-related concerns in a letter, especially regarding the amount for the Chairman. The EPF however, did not vote against the resolutions. (The Star Online)
  • AirAsia Group Bhd failed in its bid to obtain leave to challenge the Malaysian Aviation Commission's (Mavcom) refusal to mediate an ongoing dispute between the budget airline and Malaysia Airports Holdings Bhd (MAHB).
  • The High Court agreed with the Attorney General’s Chambers that Mavcom has not decided on the MAHB-AirAsia dispute, but has merely deferred the decision. Thus, this does not amount to a decision that renders AirAsia adversely affected or aggrieved and therefore entitles the budget airline to make the (judicial review) application. (The Edge Daily)
  • Hai-O Enterprise Bhd’s 4QFY19 net profit fell 36.1% Y.o.Y to RM10.0 mln on lower revenue generated from its Multilevel marketing (MLM) and wholesale divisions. Revenue for the quarter fell 36.7% Y.o.Y to RM69.9 mln.
  • For FY19, cumulative net profit declined 34.4% Y.o.Y to RM47.4 mln. Revenue for the year decreased 28.9% Y.o.Y to RM328.4 mln. (The Edge Daily)
  • Astro Malaysia Holdings Bhd’s 1QFY20 net profit grew marginally by 0.8% Y.o.Y to RM176.2 mln, thanks to lower marketing and distribution costs as well as lower finance costs. Revenue for the quarter, however, fell 5.8% Y.o.Y to RM1.23 bln. A first interim single-tier dividend of two sen per share, payable on 25th July 2019, was declared. (The Edge Daily)
  • George Kent (Malaysia) Bhd’s 1QFY20 net profit fell 37.3% Y.o.Y to RM13.5 mln, due to lower profit contributed by the engineering division. Revenue for the quarter dropped 17.0% Y.o.Y to RM82.8 mln. (The Edge Daily)
  • Redtone International Bhd’s 4QFY19 net profit rose 53.4% Y.o.Y to RM4.8 mln, thanks to higher revenue contributions from its managed telecommunication network services (MTNS) segment. Revenue for the quarter jumped 132.1% Y.o.Y to RM73.4 mln.
  • For FY19, cumulative net profit surged 157.3% Y.o.Y to RM15.4 mln. Revenue for the year increased 51.5% Y.o.Y to RM178.9 mln. (The Edge Daily)

Source: Mplus Research - 26 Jun 2019

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