• Despite opening lower at the start of the trading bell, the FBM KLCI extended its gains for the second straight session last Friday, anchored by buying support on selective plantation heavyweights. The lower liners, however, closed lower as the FBM Small Cap (-0.3%), FBM Fledging (-0.1%) and FBM Ace (-0.1%), all fell, while the broader market ended mixed.
• Market breadth turned negative as losers outpaced gainers on a ratio of 412-to-388 stocks. Traded volumes fell by 27.4% to 1.49 bln shares as investors retreated to the sidelines ahead of the Lunar New Year break.
• Anchoring the gainers on the big board was KLK (+34.0 sen), followed by BAT (+30.0 sen), Petronas Gas (+20.0 sen), Genting (+16.0 sen) and Sime Darby (+9.0 sen). Notable gainers on the broader market were consumer products stocks like Dutch Lady (+88.0 sen), Panasonic (+58.0 sen) and Ajinomoto (+26.0 sen), while United Plantations and Aeon Credit added 38.0 sen and 20.0 sen respectively.
• The selling pressure remained on glove manufacturers like Kossan (-51.0 sen), Top Glove (-15.0 sen) and Hartalega (- 9.0 sen), while Imaspro closed 2.0 sen lower after reporting a weak set of quarterly earnings. Meanwhile, Petronas Dagangan (-50.0 sen), PPB (-30.0 sen), Maxis (-6.0 sen), Maybank (-3.0 sen) and KLCC (-2.0 sen) were the main decliners on the FBM KLCI.
• The Nikkei tumbled 5.4% after the 10- year government bond yield fell below zero for the first time as the stronger Japanese Yen dragged down exporters like Toyota, Nissan, Honda and Sony.
• Both the Hang Seng Index and Shanghai Composite remain closed for the Lunar New Year break, while ASEAN indices ended mostly negative.
• U.S. stockmarkets endured a volatile trading session as the Dow closed 0.1% lower to extend its losses for the third straight session. Similarly, the S&P 500 fell 0.1%, dragged down by the energy sector (-2.6%) as crude oil prices tanked for the fourth consecutive session, while the Nasdaq declined 0.4%.
• Despite opening higher at the start of the trading bell, the FTSE (-1.0%) succumb to quick profit taking to close at its three-year low. The CAC and DAX fell 1.7% and 1.1% respectively as the latter slipped into the bear market territory. The weakness were prevalent amongst banking stocks like Deutsche Bank AG (-3.0%), Credit Suisse Group AG (-8.4%) and UBS Group AG (-5.6%).

THE DAY AHEAD

• With the market devoid of noteworthy domestic leads, investors will continue to look to overseas events for trading ideas. However, the soft overseas markets during the Lunar New Year break is likely to lead stocks on Bursa Malaysia to consolidate after last Friday’s gains. In addition, we think that fresh buying will be largely absent amid a still tentative market environment and most investors are still on their Chinese New Year break. Oil and gas stocks may also lead the market lower as oil prices continue to consolidate.
• On the downside, the 1,650 level remains the main support level for now, while the 1,680 level is the major resistance. Meanwhile, the lower liners and broader market stocks may also see a mixed-to-lower performance due to the absence of fresh buying as most retail players are still on their Lunar New Year break.

COMPANY UPDATE

• Mitrajaya Holdings Bhd is selling its 1.3 mln shares in the eye correction treatment provider, Optimax to Optimax Healthcare Services Sdn Bhd for RM5.1 mln. The gain arising from the proposed divestment is RM1.5 mln. The sale consideration is at a 39.0% premium to the net asset value of Optimax Group, as per its management accounts on 31st December 2015 of RM7.2 mln.
• Mitrajaya will use the proceeds raised from the proposed divestment to provide financial assistance to its subsidiary companies to meet their day-to-day business operational needs, which includes the payment for purchase of supplies and repayment of bank borrowings as and when it falls due.

Comments

• We are slightly positive on the divestment of the group’s healthcare division as it will not only unlock the investment value, but also allows Mitrajaya to focus on its core business of construction and property development. Going forward, we think that there will be minimal impact on the group’s earnings, given that the healthcare division only accounted to 5.1% and 4.3% of the group’s total revenue in 2014 and 2015 respectively. There is also little impact of Mitrajaya’s earnings as Optimax only contributes to about 2.0% of the group’s operating income
• We also maintain our BUY recommendation on Mitrajaya with an unchanged target price RM1.75. Our target price is derived from ascribing a target PER of 11.0x to its fully diluted 2016 construction earnings, while the value of its property development units, both local and overseas, are valued at 0.8x of their book values.

COMPANY BRIEFS

• Malaysian Resources Corp Bhd (MRCB) is planning to sell its entire 40.0% interest in Ekovest-MRCB JV Sdn Bhd and Ekovest-MRCB Contruction Sdn Bhd to Ekovest Bhd for a total cash consideration of RM8.5 mln.
• The proposed disposal, which is expected to reap about RM3.8 mln, is part of MRCB’s macro strategy to monetise its non-core assets and focus on its core business.
• Meanwhile, Ekovest’s total control over the two companies will allow it to better manage its risks and enjoy the full rewards from the operations of the companies. (The Edge Daily)
• Zecon Bhd has clinched a contract worth RM760.8 mln for the construction of a housing project in Kuching, Sarawak from Unit Perumahan Penjawat Awam 1Malaysia (PPA1M)
• The contract includes 2,117 units of double-story terrace houses and has been allocated RM138.3 mln worth of facilitation fund. (The Edge Daily)
• Prolexus Bhd is planning to expand its operations upstream by setting up a fabric mill and a garment manufacturing plant in a joint-venture (JV) with Taiwanese fabric manufacturer. Men-Chuen Fibre Industry Co Ltd (MC).
• Prolexus and MC have entered into a Memorandum of Understanding (MoU) on 5th February, 2016 to form the strategic partnership. Prolexus, via its subsidiary Trans Pacific Textile (M) Sdn Bhd (TPT), will be responsible for the operations of the fabric mill, while MC will participate in the fabric mill by investing and subscribing to TPT’s shares as well as providing its expertise.
• Further, Prolexus will be setting up a garment manufacturing plant in Vietnam as part of its capacity expansion plans, while Men-Chuen will invest in the Vietnam plant an amount that is mutually agreed upon and in turn, Prolexus will invest a similar stake in Men-Chuen Vietnam Co. Ltd.
• The joint-venture agreement, inclusive of all the mutually-agreed terms and conditions, will be executed within six months. (The Star Online)
• SMRT Holdings Bhd has announced its plans to expand its operations into the IT segment by acquiring a 64.0% equity stake in N’osairis Technology Solutions Sdn Bhd for RM6.0 mln.
• The acquisition will be funded by an issuance of 25.2 mln SMRT shares at an issue price of 23.8 sen apiece. The 25.2 mln shares represent almost 10.0% of the issued and paid-up share capital of SMRT as at 4th February, 2016. (The Edge Daily)
• CAB Cakaran Corp Bhd is considering purchasing some of Farm's Best Bhd's assets for an indicative amount of some RM242.0 mln.
• Farm's Best’s wholly-owned subsidiaries, Farm's Best Food Industries Sdn Bhd (FBF), Sinmah Breeders Sdn Bhd (SBSB) and Sinmah Livestocks Sdn Bhd (SLSB), have received three separate letters of intent (LoI) from CAB to purchase certain assets.
• CAB is looking to purchase FBF’s land, building and equipment located at its poultry processing plant in Melaka and depots at Johor, Selangor, Penang, Negeri Sembilan and Pahang, in addition to trademarks and its customer database for RM80.0 mln.
• From SBSB, CAB is looking to buy its land, building and equipment located at SBSB's breeder farms and hatcheries in Melaka, Negeri Sembilan and Johor, in addition to its licences and customer database, for RM88.0 mln.
• Lastly, from SLSB, the group is interested in acquiring its land, building and equipment at its broiler farms in Johor, Negeri Sembilan and Melaka, in addition to its licences and customer database, for RM74.0 mln. (The Edge Daily)
• DiGi.Com Bhd‘s 4Q2015 net profit was 31.7% Y.o.Y lower at RM382.4 mln, compared to RM560.0 mln a year ago, due to higher operational and maintenance cost, while revenue contracted 4.1% Y.o.Y to RM1.72 bln.
• Meanwhile, Digi’s 2015 net profit drop 15.2% Y.o.Y to RM1.7 bln, from RM2.03 bln in the previous year, while revenue fell by 1.5% Y.o.Y to RM6.9 bln, from RM7.0 bln in 2014. (The Star Online)
• The group proposed a fourth interim tax exempt single tier dividend of 4.9 sen per share, which will be paid on 25th March, 2016.
• MISC Bhd reported a 21.0% Y.o.Y fall in its 4Q2015 net profit to RM757.7 mln, contributed by a net loss on disposal of ships, property, plant and equipment. However, revenue for the quarter surged 44.5% Y.o.Y at RM3.31 bln vs.RM2.29 bln in the previous corresponding period, on the back of improved performance in all its business segments.
• For the full year of 2015, MISC's net profit was up by 12.3% Y.o.Y to RM2.47 bln, while revenue grew 17.3% Y.o.Y to RM10.91 bln, from RM9.3 bln in 2014. MISC declared a total dividend of 22.5 sen per share, which includes a second interim dividend of 12.5 sen and a final dividend of 10.0 sen. (The Star Online)
• Sino Haijing Holdings Ltd became Yong Tai Bhd’s substantial shareholder after the former invested RM280.0 mln in Yong Tai via a corporate exercise which lead to Sino having more than 33.0% voting rights.
• The corporate exercise involves Sino’s subscription of Yong Tai's proposed special issue of 150.0 mln new shares, representing 34.5% of its enlarged and paid-up share capital at an issue price of 80.0 sen per share.
• Further, it also involves the proposed subscription of 200.0 mln new Irredeemable Convertible Preference Shares (ICPS) at an issue price of 80.0 sen each, amounting to RM160.0 mln.
• Sino Haijing is planning to seek an exemption from the authorities from undertaking a mandatory takeover offer for the remaining Yong Tai shares that it does not already own, after the corporate exercise. (The Edge Daily)
• RAM Ratings has downgraded the ratings of Mudajaya Group Bhd’s Islamic Medium-Term Notes Programme (2014/2029) and Islamic Commercial Papers Programme (2014/2021) to A2/Stable/P2 from AA3/Negative/P1.
• The downgrade was a result of steeper-than-expected deterioration of Mudajaya’s financial performance, with the group having reported losses for financial year ended 31st December, 2014 and 1H2015, mainly due to cost overruns in key projects.(The Edge Daily)

Source: M+ Online Research - 10 Feb 2016