• 
• Despite the negative closing over the last two days of the previous week, the FBM KLCI, however, managed to stage a weekly rebound owing to the selective buying interest on companies that showed outperformance in their 3Q2015 earnings results. Meanwhile, the broader market and lower liners were dressed in red amid the continuing profit taking, with the exception of Plantations sub-index that bucked the market trend as palm oil prices rose to its two week high.
• Market breadth was overwhelmingly negative as losers outnumbered gainers on a ratio of 635-to-292 stocks. Traded volumes increased by 3.4% to 2.41 bln shares.
• UMW (-28.0 sen) led the heavyweight losers on the FBM KLCI, followed by Petronas Chemicals (-14.0 sen), IHH (- 11.0 sen), Westports (-8.0 sen), Astro (-5.0 sen) and RHB Capital (-4.0 sen). On the broader market, some of the major decliners include Kobay (-33.0 sen), F&N (-36.0 sen), SAM (-30.0 sen) and MPI (- 15.0 sen), while UPA fell 22.0 sen.
• On the other side of the trade, other key gainers of the day were Time Dotcom (+24.0 sen), Tasek (+12.0 sen), APB (+10.0 sen), Prestariang (+14.0 sen) and Chee Wah Corporation (+21.0 sen). Meanwhile, IOI Corporation (+27.0 sen), KLK (+28.0 sen), Genting Malaysia (+6.0 sen), CIMB (+4.0 sen) and Maxis (+2.0 sen) were amongst the other index-linked heavyweight advancers.
• Following the alleged violation of securities rules by several of China’s largest brokers, the Shanghai Composite fell 5.5% - its largest daily percentage loss since August this year. This also affected other major indices like the Hang Seng which fell by 1.9%, while the Nikkei slipped 0.3%. ASEAN indices, meanwhile, ended mostly positive.
• Once again, the U.S stockmarkets ended mostly unchanged (both daily and weekly basis) on the back of a thinly traded session. Although the defensive plays like telecoms, utilities and consumer staples managed to end in the positive territory, the broader market gains was offset by losses in energy related companies like CONSOL Energy Inc. and Southwestern Energy Company.
• Despite the losses in mining related stocks on the FTSE, the U.K. equities benchmark index, however, closed the week higher, whilst extending its weekly gains for its second consecutive time. Meanwhile, the DAX and CAC also registered its second straight weekly gains. Separately, the Euro fell against the Dollar on expectations of further stimulus plan, while France's consumer spending fell in October 2015 which is its first decline since March 2015.

THE DAY AHEAD

• With the end of the results reporting season and the lack of positive catalyst, coupled with the weakening market momentum, we think that the FBM KLCI could finding it difficult to hold above the 1,680 level and may instead consolidate over the near term as the buying interest dissipates.
• As it is, selective buying on the index heavyweights has helped the market to remain above the 1,680 level over the past few sessions even as the broader market turned increasingly choppy as short term market participants are locking-in profit ahead of the year-end holidays and a decision on U.S. interest rates in mid-December.
• With the increasing cautiousness, we think the market could dip back to the 1,650- 1,670 level over the near term as the consolidation takes hold over the near term. The profit taking on the lower liners are also looking to prolong and could leave the lower liners looking weak again.

COMPANY UPDATE

• Barakah Offshore Petroleum Bhd registered a 3Q2015 net loss of RM15.4 mln vs. a 3Q2014 net profit of RM28.4 mln, owing to the sharply lower profit recognition from various projects and realised forex loss from the repayment of its U.S. Dollar loan. Revenue for the quarter declined by 56.7% Y.o.Y to RM110.9 mln.
• For 9M2015, cumulative net profit stood at RM4.3 mln vs. a net profit of RM50.2 mln in 9M2014. Revenue for the period, however, only declined by 14.9% Y.o.Y to RM425.7 mln.

Comments

• The deferment of earnings was within our expectations (as was mentioned in our 2Q2015 results note) as many of the umbrella projects - mainly by Petronas was withheld given the current difficult operating environment. However, we have underestimated the much slower conversion (or quantum) of earnings from its current orderbook. Owing to the aforementioned reason, we have slashed the company’s fully diluted 2016 EPS estimate by 25.0% to reflect the substantially slower earnings recognition.
• Despite the significant adjustment in our fully diluted 2016 EPS estimate, the valuation gap was bolstered by the improvement in average valuations in similarly sized oil and gas peers listed on Bursa Malaysia. Hence, we maintain our HOLD recommendation with a revised target price of RM0.80 (from RM0.88 previously) by ascribing a revised target PER of 13.5x (vs. 11.0x) to our revised fully diluted 2016 EPS estimate of 6.0 sen (vs. 8.0 sen). Our current stance is supported by its unbilled orderbook of RM1.68 bln (with earnings visibility up until 2017-2018) and potential pipeline (onshore) contracts from Pengerang project.
• However, we have also adopted a wait-and-see approach on Barakah and are not hesitant to revise our stance if such developments arise: (1) prolonged and longer-than-expected delay in the earnings recognition up until mid-2016, (2) crude oil prices tumbled to multi-year low levels, and (3) Barakah’s bread and butter business (pipeline commissioning services) is adversely affected.
• Econpile Holdings Bhd’s 1QFY16 net profit gained 52.4% Y.o.Y to RM14.5 mln on higher contributions from its ongoing foundation work on property development projects, which yields higher margins. Revenue for the quarter, however, fell 4.9% Y.o.Y to RM101.1 mln.
• The reported earnings came in within our expectations as both revenue and net profit accounts to 21.1% and 27.6% of our full year estimated net profit and revenue of RM52.4 mln and RM478.2 mln respectively. A single tier interim dividend of 1.0 sen per share, payable on 22nd December 2015 was declared.

Comments

• As the reported earnings came in within our estimates, we leave our earnings forecast unchanged. We also maintain our BUY recommendation on Econpile with an unchanged target price of RM1.35, despite imputing a lower orderbook replenishment assumption rate of RM350.0 mln for FY16 (RM400.0 mln in FY15).
• Our target price is derived from ascribing an unchanged target PER of 13.0x to its FY16 EPS of 10.4 sen, which is in line with peers with similar market capitalisation and the construction industry average.
• We continue to like Econpile as one of the leading piling and substructure contractor in Malaysia, riding on the robust construction industry outlook. The group will continue to capitalise on the piling works for the Klang Valley MRT Line 2, whilst its outstanding construction orderbook of approximately R630.0 mln (after securing a total of RM216.0 mln contracts in 1QFY16) will provide earnings visibility over the next 18 months.

COMPANY BRIEFS

• AMMB Holdings Bhd (AmBank Group) has noted that the RM53.7 mln penalty imposed on it by Bank Negara Malaysia (BNM) was a result of weaknesses in its reporting systems and processes.
• The non-compliance did not result into financial losses either to AmBank Group, or to its customers. Also, BNM has not placed any restrictions on the business operations of AmBank Group.
• Meanwhile, the company had strengthened its organisational structure in the area of compliance in order to improve its systems and processes by recruiting a number of senior and experienced officers.
• It has also increased and enhanced the training and awareness programs and, at the same time, senior management and the respective boards have heightened the oversight and improved the check and balance processes. (The Edge Daily)
• Muhibbah Engineering (M) Bhd has secured a contract worth between RM93.0 mln and RM100.0 mln from Ophir Production Sdn Bhd to provide engineering, procurement, construction, installation and commissioning (EPCIC) services for the Ophir wellhead platform, located offshore Peninsular Malaysia. The aforementioned contract will commence this month for a period of 14 months.
• On a separate note, the company’s 3Q2015 net profit rose 13.3% Y.o.Y to RM23.0 mln due to improved operational efficiencies of the Favelle Favco crane division and foreign exchange gains from its Cambodian airports operation. Revenue for the quarter increased 4.6% Y.o.Y to RM393.6 mln.
• For 9M2015, cumulative net profit grew 6.8% Y.o.Y to RM65.5 mln. Revenue for the period, however, decreased 5.6% Y.o.Y to RM1.17 bln. It has a total outstanding secured orderbook of RM2.15 bln as at 20th November, 2015. (The Edge Daily)
• Axiata Group Bhd’s 3Q2015 net profit increased 40.0% Y.o.Y to RM891.4 mln owing to the favorable forex gains. Revenue for the quarter grew to RM5.07 billion from RM4.65 billion in the previous corresponding quarter.
• The telco said it registered higher revenue from its operating units in Indonesia, Bangladesh, Sri Lanka and Cambodia. Its Malaysian operations, however, recorded lower income.
• For 9M2015, cumulative net profit rose 18.1% Y.o.Y to RM2.09 bln. Revenue for the period grew 4.5% Y.o.Y to RM14.52 bln. (The Edge Daily)
• Alliance Financial Group Bhd’s 2QFY16 net profit dropped 25.3% Y.o.Y to RM134.7 mln, mainly due to higher allowance for losses on loans and a gain from disposal of land, which was recorded in 1HFY15. Revenue for the quarter also fell by 6.2% Y.o.Y to RM365.9 mln.
• For 1HFY16, cumulative net profit declined by 17.5% Y.o.Y to RM256.6 mln. Revenue for the period decreased by 2.1% Y.o.Y to RM710.3 mln.
• The company recorded a return on equity of 11.5% for 1HFY16. The gross impaired loans ratio remained stable at 1.1% as at 30th September, 2015 vs. (industry average of 1.6%), while loan loss coverage stood at 92.7%. An interim dividend of 8.0 sen per share was declared, which is payable on 30th December 2015. (The Edge Daily)
• Affin Holdings Bhd posted a lower 3Q2015 net profit of RM102.4 mln vs. RM134.0 mln from a year ago, as a result of higher allowance for loan impairment and lower operating income. Revenue for the quarter declined by 7.8% Y.o.Y to RM459.8 mln.
• For 9M2015, cumulative net profit slid 29.2% Y.o.Y to RM271.9 mln due to higher allowance for loan impairment and higher overhead expenses of RM132.4 mln and RM56.1 mln respectively. Revenue for the period was flattish at RM1.34 bln.
• As at 30th September, 2015, the group's gross impaired loan ratio stood at 2.2%, an increase of 17 basis points compared with 30th June, 2015. The company declared an interim dividend of 3.0 sen per share, which is payable on 30th December 2015.
• Meanwhile, Affin’s subsidiary, Affin Hwang Investment Bank Bhd and Thai-based Thanachart Securities PCL have entered a strategic business alliance for collaboration in the area of institutional equities trading and research.
• Under the agreement, Affin Hwang IB will have the exclusive right to distribute Thanachart Securities PCL's research reports covering companies listed on the Stock Exchange of Thailand (SET) to Malaysian institutional investors, on a co-branded basis.
• In return, Affin Hwang IB will channel its institutional clients' trade orders for shares quoted on the SET via Thanachart Securities. (The Edge Daily)

• E&O Bhd’s 2QFY16 net profit grew 15.1% Y.o.Y to RM24.5 mln. Revenue for the quarter increased 10.9% Y.o.Y to RM85.7 mln.
• For 1HFY16, cumulative net profit rose 18.7% Y.o.Y to RM47.7 mln. Revenue for the period, however, fell by 25.3% Y.o.Y to RM154.6 mln, mainly due to lower revenue from its property business segment. (The Edge Daily)

Source: M+ Online Research - 30 Nov 2015