Highlights

Mplus Market Pulse - 3 May 2018

Date: 03/05/2018

Source  :  Malacca Securities
Stock  :  HARTA       Price Target  :  6.10      |      Price Call  :  HOLD
        Last Price  :  6.15      |      Upside/Downside  :  -0.05 (0.81%)
 


Two Speed Market Persisting

  • The FBM KLCI (-1.0%) halted a three-day winning streak yesterday as the key index erased all its previous three session gains. The negative sentiment stemmed from the sluggish Nikkei Malaysia Manufacturing PMI data that declined to six-month low of 48.6 in April 2018, coupled with political uncertainty surrounding the upcoming general election. The lower liners also closed in the red, while the broader market ended mostly lower.
  • Market breadth stayed negative as decliners outrun advancers on a ratio of 551-to-311 stocks. Traded volumes, however, rose 22.8% to 2.10 bln shares amid the escalating selling activities.
  • More than two-thirds of the key index components retreated, dragged down by Nestle (-RM4.90), followed by Hong Leong Financial Group (-44.0 sen), KLCC (-29.0 sen), Petronas Dagangan (-26.0 sen) and Maxis (-21.0 sen). Notable decliners on the broader market were financial stocks like Aeon Credit (-26.0 sen), BIMB (-19.0 sen) and Allianz (-18.0 sen), while BAT and Carlsberg shed 72.0 sen and 44.0 sen respectively.
  • Consumer products stocks like Hong Leong Industries (+44.0 sen) and Heineken (+38.0 sen) topped the broader market gainers list, while Time dotCom and UOA Development added 23.0 sen and 22.0 sen respectively. YKGI Holdings jumped 4.0 sen after forming a JV company with Ajiya Bhd for future business expansion. There were only three advancers on the FBM KLCI – Petronas Gas (+38.0 sen), Public Bank (+20.0 sen) and Telekom (+4.0 sen).
  • Asia benchmark indices retreated on Wednesday as the Nikkei fell 0.2% despite the Nikkei Services PMI rose to a six-month high at 52.5 in April 2018. The Two Speed Market Persisting
  • More than two-thirds of the key index components retreated, dragged down by Nestle (-RM4.90), followed by Hong Leong Financial Group (-44.0 sen), KLCC (-29.0 sen), Petronas Dagangan (-26.0 sen) and Maxis (-21.0 sen). Notable decliners on the broader market were financial stocks like Aeon Credit (-26.0 sen), BIMB (-19.0 sen) and Allianz (-18.0 sen), while BAT and Carlsberg shed 72.0 sen and 44.0 sen respectively.
  • Consumer products stocks like Hong Leong Industries (+44.0 sen) and Heineken (+38.0 sen) topped the broader market gainers list, while Time dotCom and UOA Development added 23.0 sen and 22.0 sen respectively. YKGI Holdings jumped 4.0 sen after forming a JV company with Ajiya Bhd for future business expansion. There were only three advancers on the FBM KLCI – Petronas Gas (+38.0 sen), Public Bank (+20.0 sen) and Telekom (+4.0 sen).
  • Asia benchmark indices retreated on Wednesday as the Nikkei fell 0.2% despite the Nikkei Services PMI rose to a six-month high at 52.5 in April 2018. The Hang Seng Index declined 0.3% on weakness in the finance sector (-0.7%), while the Shanghai Composite (-0.03%) trended lower for the fourth straight session. ASEAN stockmarkets, meanwhile, closed mostly lower yesterday.
  • Wall Street retreated overnight after reversing all their intraday gains as the Dow fell 0.7% after the U.S. Federal Reserve kept its benchmark interest unchanged, whilst 10-year treasury yield climb to the 3.0% level again. On the broader market, the S&P 500 declined 0.7%, while the Nasdaq closed 0.4% lower.
  • Earlier, European benchmark indices advanced as the FTSE and CAC added 0.3% and 0.2% respectively, boosted by the weaker Euro Currency against the Greenback, coupled with gains in commodity shares. The DAX surged 1.5% to close at its highest level in three months, buoyed by the bullish corporate results.

The Day Ahead

  • Yesterday’s downtrend was surprising as the big caps were building up momentum ahead of upcoming general election. Nevertheless, the fall has undone all the previous few session’s positivity and is now leaving the key index in a dour note again. Therefore, we see further near term downside bias as market interest is likely to continue waning ahead of the upcoming general election and few catalysts to prompt renewed buying.
  • Although the 1,850 level provided some support yesterday, it will be under threat again over the near term as the unwinding continues. Therefore, the other supports at 1,847 and 1,842 are likely to come into play.
  • We also expect the lower liners and broader market shares to underperform due to cautious market environment ahead of next week’s general election and consequently market participation will remain on the low side for longer.

Compnay Update

  • Hartalega Holdings Bhd has earmarked over RM14.0 mln to upgrade its Enterprise Resource Planning (ERP) system, in-line with its commitment towards realising Industry 4.0, which entails a smart manufacturing system. The pilot ERP project will begin with its Next Generation Integrated Glove Manufacturing Complex at Sepang this year and will be subsequently rolled out at its Bestari Jaya plants in 2019.

Comments

  • We are positive on Hartalega’s commitment towards its goal of embedding advanced technology into its manufacturing and business processes as it would allow the group to strengthen its operations, integrate automation across its supply chain, improve operational efficiency and potentially improve profitability in the long run.
  • However, we keep our HOLD call with an target price of RM6.10, based on a higher target PER of 34.5x on Hartalega’s adjusted FY19 EPS of 17.7 sen, as we do not foresee an immediate impact to the group’s bottomline from to the aforementioned investment.
  • The higher valuations reflect Hartalega’s superior margins compared to its peers and are also in-line with its two-year average historical PER.
  • Although Hartalega’s target PER remains at a premium to its competitors, which we think is justified in view of its concrete position as a market leader in the nitrile glove segment, superior operational efficiency and lucrative margins.

Company Brief

  • Public Bank Bhd’s 1Q2018 net profit gained 12.0% Y.o.Y to RM1.4 bln, from RM1.25 bln – due to higher net interest income and a 15.6% Y.o.Y growth in non-interest income. Revenue, meanwhile, rose to RM5.35 bln from RM5.03 bln previously. Public Bank expects domestic demand to remain favourable in 2018. (The Star Online)
  • Asdion Bhd, which was issued with an Unusual Market Activity (UMA) query yesterday, said that it is actively exploring avenues to enhance shareholder value and is unaware of any other corporate developments that may have accounted for the UMA.
  • The group’s shares slipped 0.5 sen or 1.1% to close at 46.5 sen, after shooting up to an intraday high of 50 sen. About 17.4 mln shares were traded. (The Edge Daily)
  • Petronas Chemicals Group Bhd is planning to spend about RM4.3 bln in capital expenditure for the Pengerang Integrated Complex (PIC) and RM600.0 mln a year as maintenance capex for its plant for the next two years.
  • Currently, PetChem’s PIC petrochemical projects are progressing on schedule and are 74.0% completed, while the overall project, including refineries, is 87.0% completed.
  • In its 20-year plan, PetChem intends to grow its specialty chemicals business to 15.0% of revenue, from 5.0% at present. (The Star Online)
  • IHH Healthcare Bhd has increased its offer to participate in India's Fortis Healthcare Ltd and its affiliates by 9.0% to 175 rupees (RM10.31) per share from an earlier proposal of 160 rupees per share.
  • All other terms and conditions in IHH’s last offer will remain the same, while the offer is valid until 5pm on 15th May 2018.
  • IHH said it had issued the enhanced proposal to the board of Fortis to reiterate its seriousness and commitment to invest in Fortis. (The Edge Daily)
  • Inta Bina Group Bhd has been appointed as the main contractor for a residential development in Shah Alam for the total contract sum of RM57.7 mln. The 18-months project was awarded by ONG&ONG 360 Consultancy Sdn Bhd to construct 104 semidetached homes, one community centre and one guard house for Eco Ardence Sdn Bhd and has commenced on 30th April 2018. (The Edge Daily)
  • Harrisons Holdings (Malaysia) Bhd has proposed to venture into the retail business in Singapore through the acquisition of the Famous Amos cookies business there for S$5.7 mln.
  • It plans to acquire its second major retailing concept after the recent acquisition of Watts Harrisons Sdn Bhd, which retails and wholesale the uniform price products under the Komonoya brand in Malaysia, Singapore and Brunei. The acquisition is expected to be completed within three months from signing the SPA.
  • Going forward, the group plans to expand to other regional territories with the Komonoya and Famous Amos brands. (The Edge Daily)
  • GD Express Carrier Bhd has aborted its plan to acquire two firms collectively known as MBE Malaysia as the conditions precedent in the agreement inked for the proposed acquisition were not fully satisfied at the cut-off date of 30th April, 2018.
  • MBE Malaysia is made up of MBE Business Corp Sdn Bhd and MBE Business Holdings Sdn Bhd, which GD Express proposed on 1st March 2018 to acquire via a subsidiary for RM5.5 mln in total to expand the group's income stream into the retail delivery business. (The Edge Daily)
  • A consortium consisting of YTL Coporation Bhd and Lembaga Tabung Haji has received a letter of appointment from MyHSR Corp Sdn Bhd commissioning the consortium as the project delivery partner for the southern section of the Kuala LumpurSingapore High Speed Rail project. (The Edge Daily)
  • On the same note, the MRCB-Gamuda Consortium has also received a letter of appointment from MyHSR Corporation Sdn Bhd commissioning the jointventure (JV) as the Project Delivery Partner for works in relation to the northern section of the Kuala LumpurSingapore High Speed Rail. (The Star Online)  

Source: Mplus Research - 3 May 2018

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