• The FBM KLCI erased all its previous session’s gains yesterday as the key index traded in the negative territory throughout the trading session before closing at its intraday low of 1,664.17 pts. Meanwhile, the lower liners and broader market shares also took a beating with only the Plantations sub-index (+0.3%) the sole outperformer on the broader market.
• Expectedly, market breadth turned negative as losers outpaced gainers on a ratio of 601-to-229 stocks. Traded volumes fell by 20.1% to 1.53 bln shares amid the negative market sentiment.
• Topping the decliners list on the big board was BAT (-40.0 sen), followed by Sime Darby (-32.0 sen), Genting (-24.0 sen), Petronas Gas (-20.0 sen) and UMW (-17.0 sen). Notable decliners on the broader market include Dutch Lady (-RM1.98), Latitude Tree (-44.0 sen), and Tien Wah (-21.0 sen). Fiamma and Pos Malaysia tanked 21.0 sen and 18.0 sen respectively after reporting weak sets of quarterly earnings.
• In contrast, among the biggest advancers of the day were Warisan (+27.0 sen), United Plantations (+24.0 sen), TAHPS (+20.0 sen), Panasonic (+18.0 sen) and Time dotCom (+18.0 sen). ECS ICT jumped 6.0 sen after reporting a strong set of quarterly earnings. There were only five gainers on the FBM KLCI – KLK (+28.0 sen) PPB (+18.0 sen), Hong Leong Bank (+4.0 sen), IOI Corporation (+2.0 sen) and Astro (+1.0 sen).
• Major Asian benchmark indices also closed in the red as the Nikkei fell 0.9% after the Japanese Yen strengthened against the Greenback. The Hang Seng Index declined 1.2%, but the Shanghai Composite rose 0.9% to close in the green in the final trading hour. ASEAN indices, meanwhile, ended mostly lower.
• Despite opening lower at the start of the trading bell, U.S. stockmarkets managed to close in the positive as the Dow rose 0.3% after crude oil prices stabilised. On the broader market, the S&P 500 climbed 0.4% on a late rally in the energy, basic materials and technology stocks, while the Nasdaq rose 0.9%.
• European benchmark indices, however, tanked for the second straight session – the FTSE (-1.6%), CAC (-2.0%) and DAX (-2.6%) all took a beating. The negative market sentiment was mainly due to the decline in crude oil prices, coupled with concerns over the potential exit of the United Kingdom from the European Union.

THE DAY AHEAD

• As it is, the FBM KLCI’s volatility is likely to continue in tandem with similar conditions in many key overseas equity markets. Therefore, we think the FBM KLCI could stage a recovery after yesterday’s steep falls as the calmer U.S. markets could also permeate to Bursa Malaysia. We think that bargain hunting activities will help the key index to gain some of its lost ground.
• Nevertheless, the tentative market environment could still limit the near term recovery and we continue to think that the 1,680 level will be the main near term resistance. On the downside, the 1,650 level is the main support.
• Meanwhile, the gyrating market has left many retail players on the sidelines as the cautiousness still prevails. With fewer trading ideas, the near term market breadth is also likely to remain moderate and this will not provide ample catalysts for the market to head significantly higher over the near term.

MACRO BRIEF

• Malaysia's January 2016 inflation rate surged 3.5% Y.o.Y – the largest annual increase since March 2014, but was below economists’ forecast of a 3.7% Y.o.Y growth. The index climbed following the introduction of the 6% Goods and Services Tax in April 2015, but had been below 3.0% since September 2015.
• The weakening of the Ringgit, the worst performing currency in the region in 2015, had also boosted the prices of imports. Bank Negara has an inflation target this year of 2.5%–3.5% and expects inflation to peak in 1Q2016 before moderating, as low energy and commodity prices persist. (The Edge Daily)

COMPANY UPDATE

• Protasco Bhd’s 4Q2015 net profit stood at RM20.0 mln vs. a net loss of RM4.1 mln recorded in the previous corresponding quarter that resulted from a one-off impairment loss of RM18.9 mln on an oil & gas venture. Nevertheless, 4Q2015’s net profit would have gained 35.0% Y.o.Y vs. the normalised 4Q2014 net profit of RM14.8 mln after stripping off the one-off impairment losses. At the top line, revenue for the quarter added 15.7% Y.o.Y to RM455.9 mln.
• For 2015, cumulative net profit stood at RM66.2 mln vs. a cumulative net loss of RM46.4 mln. Revenue for the year gained 21.5% Y.o.Y to RM1.29 bln. The reported earnings are above our estimates, surpassing our previous full year net profit forecast of RM57.9 mln, while the reported revenue was also above our estimates, 14.1% higher than our full year revenue forecast of RM1.13 bln.
• The difference in net profit is mainly due to higher contributions from the construction and property development segments where the latter yielded higher margins as well as a lower effective tax rate (28.5% vs. our forecast of 30.0%).

Comments

• We remain sanguine on Protasco’s prospects, backed by an outstanding concession orderbook of approximately RM900.0 mln to provide earnings visibility until 2019, while its outstanding construction orderbook of RM769.0 mln and unbilled property sales of approximately RM80.0 mln will provide earnings visibility over the next two years. Meanwhile, the group has a healthy balance sheet with a manageable net gearing of 30.4%.
• With the reported earnings coming above our estimates, we raised our earnings forecast for 2016 and 2017 upwards by 7.8% and 8.3% to RM69.9 mln and RM75.8 mln respectively.
• We also maintain our BUY recommendation on Protasco with a higher target price RM2.40 (from RM2.30). Our target price is derived from ascribing an unchanged target PER of 11.0x to its 2016 construction earnings, a target PER of 8.0x to its concession and engineering services’ earnings, while its education and trading earnings remain pegged at target PERs of 6.0x respectively due to their smaller scale businesses. Its property development division’s valuation remains unchanged at 0.6x of its BV.
• Econpile Holdings Bhd’s 2QFY16 net profit gained 52.4% Y.o.Y to RM16.6 mln on higher contributions from its ongoing foundation work on property development projects, which yields higher margins vs. piling works for infrastructure projects, coupled with higher billings from certain projects which are close to its completion stage. Revenue for the quarter increased 5.6% Y.o.Y to RM110.6 mln.
• For 1HFY16, cumulative net profit added 54.1% Y.o.Y to RM31.1 mln. Revenue for the period, however, was flat at RM211.6 mln. The reported earnings came in slightly above our expectation; accounting to 59.3% of our FY16 estimated net profit of RM52.4 mln, while the reported revenue came in slightly below our expectation, accounting to 44.3% of our full year revenue of RM478.2 mln.

Comments

• Econpile has secured some RM236.3 mln worth of construction contracts in 1HFY16, accounting to 67.5% of our targeted orderbook replenishment rate of RM350.0 mln for FY16. Although the value of contracts secured were below the group’s 1HFY15 orderbook replenishment rate at RM321.3 mln, we think that this could be the new norm, given that many property developers are scaling back their launches amid the subdue property market.
• Meanwhile, Econpile’s outstanding orderbook of approximately RM600.0 mln will provide earnings visibility over the next 18 months.
• Despite the reported earnings coming in slightly above our estimates, we leave our earnings forecast unchanged, pending an analyst briefing later. We also maintain our BUY recommendation on Econpile with an unchanged target price of RM1.35. 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 its peers with similar market capitalisation.

COMPANY BRIEFS

• Telekom Malaysia Bhd’s (TM) 4Q2015 net profit fell 11.9% Y.o.Y to RM192.4 mln due to foreign exchange losses from its borrowings as the Ringgit weakened against the U.S. Dollar, coupled with the consolidation of Packet One Networks (Malaysia) Sdn Bhd (P1). Revenue for the quarter, however, improved marginally by 0.9% Y.o.Y to RM3.18 bln.
• For 2015, cumulative net profit declined 15.8% Y.o.Y to RM700.3 mln. Revenue for the year, however, gained 4.3% Y.o.Y to RM11.72 bln. A second interim dividend of 12.1 sen per share, bringing the 2015 total dividend payout to 21.4 sen per share was declared. (The Star Online)
• Plantations and property giant, Sime Darby Bhd’s 2QFY16 net profit fell 37.5% Y.o.Y to RM273.3 mln, impacted by the lower average crude palm oil (CPO) prices and fresh fruit bunches (FFB) output. Revenue for the quarter, however, added 10.1% Y.o.Y to RM11.83 bln.
• For 1HFY16, cumulative net profit slumped 35.8% Y.o.Y to RM601.7 mln. Revenue for the period, however, gained 5.3% Y.o.Y to RM22.00 bln. An interim dividend of six sen a share was declared. (The Star Online)
• Petronas Gas Bhd’s 4Q2015 net profit fell 27.4% Y.o.Y to RM424.5 mln, in line with lower share of profit from joint ventures and higher operating costs. Revenue for the quarter, however, increased 2.3% Y.o.Y to RM1.14 bln.
• For 2015, cumulative net profit rose 7.8% Y.o.Y to RM1.98 bln. Revenue for the year improved 1.5% Y.o.Y to RM4.45 bln. A dividend of 17.0 sen per share for the quarter was announced. (The Star Online)
• The Employees Provident Fund has emerged as a substantial shareholder in Only World Group Holdings Bhd (OWG) after acquiring another 12.4 mln shares. The acquisition on 18th February 2015 brings its stake in the company to 5.1%. (The Star Online)
• Parkson Holdings Bhd’s 2QFY16 net loss stood at RM31.4 mln vs. a net profit of RM110.6 mln in the previous corresponding quarter, as the retail group registered losses in its operations abroad in China, Vietnam, Myanmar and Indonesia. Revenue for the quarter, however, rose 5.9% Y.o.Y to RM1.04 bln.
• For 1HFY16, cumulative net profit sank 75.7% Y.o.Y to RM31.9 mln. Revenue for the period, however, gained 7.7% Y.o.Y to RM1.97 bln. (The Edge Daily)
• Karex Bhd’s 2QFY16 net profit jumped 55.7% Y.o.Y to RM22.7 mln, buoyed by sales of higher margin products, lower latex price and a one-off gain from a bargain purchase amounting to RM4.7 mln. Revenue for the quarter grew 25.4% Y.o.Y to RM96.6 mln.
• For 1HFY16, cumulative net profit gained 64.1% Y.o.Y to RM44.9 mln. Revenue for the period climbed 17.4% Y.o.Y to RM172.7 mln.
• Separately, Karex plans to issue one bonus share-for-every two existing Karex shares held to reward shareholders. The world’s largest condom maker could be issuing 334.1 mln new bonus shares. The group intends to complete the bonus share issuance by 2Q2016. (The Edge Daily)
• Fajarbaru Builder Group Bhd's 2QFY16 net profit soared 5.6x Y.o.Y to RM8.3 mln, owing to the contributions from the group's new logging and timber trading business. Revenue for the quarter improved 35.1% Y.o.Y to RM116.1 mln.
• For 1HFY16, cumulative net profit leaped 4.3x Y.o.Y to RM11.1 mln. Revenue for the period expanded 33.7% Y.o.Y to RM225.5 mln. (The Edge Daily)
• CLIQ Energy Bhd, the second oil and gas special purpose acquisition company (SPAC) listed on Bursa Malaysia, will be liquidated and returning monies to shareholders after the Securities Commission (SC) declined its request for more time to acquire its qualifying asset (QA).
• CLIQ has received the official response from the SC via a letter dated 24th February 2015, which stated that the commission has decided it will not be able to accede to the SPAC's extension request. (The Edge Daily)
• Chemical Company of Malaysia Bhd's (CCM) Indonesian unit is disposing of three pieces of lands, measuring in aggregate 75,339 sq.m. (810,942 sq.ft.) in Medan, Indonesia, for IDR121.89 bln (RM38.5 mln) cash.
• It plans to utilise the proceeds to settle the intercompany loan taken up by PTCCMA, as well as working capital after paying all incidental costs to be incurred in connection with the proposed disposal. (The Edge Daily)
• Negeri Sembilan property developer Matrix Concepts Holdings Bhd’s 4Q2015 net profit fell 34.8% Y.o.Y to RM36.8 mln, due to decrease in revenue recognition from sales of industrial properties as well as land sales. Revenue for the quarter dropped 6.3% Y.o.Y to RM141.5 mln.
• For 2015, however, cumulative net profit improved 17.0% Y.o.Y to RM213.2 mln. Revenue for the year rose 17.1% Y.o.Y to RM701.0 mln. A fourth interim dividend of 3.75 sen per share, payable on 8th April 2016 was declared. (The Edge Daily)

Source: M+ Online Research - 25 Feb 2016