Following the breakdown in talks among major oil producers in limiting oil production, the FBM KLCI (-0.6%), alongside with other key regional indices, ended in the negative territory to start the week. Meanwhile, both the lower liners and the broader market shares were also splashed in red with the exception of Consumer Products (+0.2%) sub-index which was the sole outperformer.

Market breadth turned negative as losers outstripped gainers on a ratio of 558-to- 251 stocks. Traded volumes, however, rose by 9.2% to 1.73 bln shares as investors locked-in recent gains.

More than two-thirds the key index constituents fell with BAT (-44.0 sen) taking the heaviest beating, followed by KLCC (-20.0 sen), CIMB (-17.0 sen), Public Bank (-12.0 sen) and Hong Leong Financial Group (-12.0 sen). Significant decliners on the broader market were Panasonic (-30.0 sen), Aeon Credit (-18.0 sen), Malaysia Airport Holdings (-18.0 sen) and Time dotCom (-17.0 sen). Uzma fell 9.0 sen after crude oil prices tanked.

Amongst the biggest gainers on the broader market gainers include consumer products stocks like Ajinomoto (+20.0 sen), QL Resources (+13.0 sen) and MSM (+16.0 sen), while SKB Shutters and Hong Leong Industries rose 11.5 sen and 10.0 sen respectively. There were only three gainers on the big board – PPB Group (+20.0 sen), MISC (+8.0 sen) and Maxis (+1.0 sen).

Key regional indices tanked as the Nikkei fell 3.4% after a twin earthquake rattled investors’ sentiment on the outlook of Japan’s economic growth and corporate profits. The selling pressure in oil stocks sent the Shanghai Composite and the Hang Seng Index to close 1.4% and 0.7% lower respectively, in wake of the unfavorable outcome in the talks between the major oil producers. ASEAN benchmark indices, meanwhile, ended mostly lower.

U.S. stockmarkets rebounded overnight as the Dow rose 0.6% to close marginally above the 18,000 level for the first time since July 2015. On the broader market, the S&P 500 reversed all its intraday losses to close 0.7% higher, lifted by the stronger-than-expected earnings from Hasbro Inc (+5.8%) and Walt Disney Co (+3.4%).

European benchmark indices also closed higher – the FTSE (+0.2%), CAC (+0.3%) and DAX (+0.7%) all rebounded from their intraday lows as investors shrugged off the failed meeting between major oil producers. Meanwhile, Spain’s Caixabank launched a takeover bid for Portugal’s BPI at €1.113 per share for the 55.9% of the remaining shares that it does not own.

THE DAY AHEAD

We think the FBM KLCI could stage a quick rebound over the near term amid the overnight gains on the key global indices and the sharp rebound in oil prices that could see some light bargain hunting on some of the beaten down oil and gas stocks. The more positive market undertone will also help investors to bargain hunt on other sold down stocks.

This will help the key index to stage a recovery back above the 1,720 level, but the 1,730 level remains elusive for now as the buying interest has not returned sufficiently to lift the market significantly higher. In addition, the general market condition is still cautious as investors await for stronger catalysts to re-enter the market.

COMPANY UPDATE

Kimlun Corporation Bhd plans to establish a dividend reinvestment plan (DRP) as an option for shareholders to reinvest their dividends instead of receiving cash. The DRP will be applicable to the 5.8 sen per share final dividend announced on 26th February 2016.

Under a minimum scenario, the shares to be issued pursuant to the DRP could amount to 11.1 mln shares worth RM5.5 mln with an enlarged issued and paid-up capital of 311.6 mln shares totaling RM155.8 mln. On a maximum scenario, the shares issued could amount to 13.3 mln worth RM6.6 mln with an enlarged issued and paid-up share capital of 374.0 mln shares totalling RM187.0 mln (including full conversion of its outstanding warrants). The shareholders would benefit from new shares issued at a discount and free from brokerage fees.

The implementation of the DRP on 2015’s final dividend is expected to be completed by 3Q2016, subject to shareholders' approval.

Going forward, unless the board has determined that the reinvestment option will apply to a particular dividend declared (whether in whole or in part), all future dividends will be paid wholly in cash to shareholders in the usual manner.

Comments

We are mildly positive on the DRP proposal as it will provide a win-win situation for both shareholders and the company; allowing investors to increase their shareholdings at a discounted rate with no fees attached (excluding brokerage fees) and improve Kimlun’s cash flow without having the need to increase the gearing ratio, which stood at 0.4x as of 31st December 2015 for future CAPEX expansion. However, this will be offset by the dilution of new shares issued.

There is no immediate effect on Kimlun’s earnings and we leave our earnings estimates unchanged for now. We also maintain our BUY recommendation on Kimlun with an unchanged target price of RM2.00. Our target price is derived from ascribing an unchanged target PER of 11.0x to its 2016 construction earnings, PER of 6.0x to its manufacturing business, while its property development segment’s valuation remain unchanged at 0.6x its BV due to its relatively small-scale property development project in Cyberjaya.

COMPANY BRIEFS

Malakoff Corporation Bhd has withdrawn its proposed resolution on directors fees of not exceeding RM1.5 mln each commencing 31st December 2016 at its 21st April 2016 AGM following feedback from shareholders. The board view that it is in the best interest of the company for the ordinary resolution to be withdrawn. (The Star Online)

Spring Gallery Bhd (SGB) has secured a RM176.0 mln construction job to undertake a mixed development project including apartments and shop offices on a 6.0-ac. site in Pulai, Johor. The Johor State Tennis Academy was occupying the land and it would be relocated to Taman Nusa Duta, Johor Bahru.

SGB would build a new State Tennis Academy together with a shooting range and multipurpose courts at Taman Nusa Duta as required by the State Government and also 18 three-storey shop offices and two blocks of 25-storey medium cost apartments. The development order is expected to be obtained in July 2016 and the completion date is 30 months from the execution date of the agreement. (The Star Online)

CIMB Group Holdings Bhd’s Chairman, Datuk Seri Nazir Razak has announced that he will take a leave of absence effective 18th April 2016 amid an independent review on the banking activities relating to his personal account.

The board review, which commenced on 5th April 2016, is expected to be completed in a few weeks. The board also appointed an external audit firm Ernst & Young to assist with the review. (The Edge Daily)

Can-One Bhd has clarified that it has not received any formal proposal or offer from any party expressing interest to acquire equity interest in its wholly-owned dairy manufacturing unit, F&B Nutrition Sdn Bhd.

However, it confirmed that it has been approached by a number of parties including Kumpulan Wang Persaraan (Diperbadankan) (KWAP) expressing interest to acquire a stake in its dairy manufacturing business.

KWAP’s CEO, Datuk Wan Kamaruzaman Wan Ahmad had said that the pension fund was in the final stages of completing an acquisition of a 30.0% stake in F&B Nutrition for RM280.0 mln. (The Edge Daily)

SCGM Bhd is acquiring three pieces of agricultural land in Kulai, Joho, for a total cash consideration of RM11.8 mln, for its future expansion plans. The three tracts, measuring a combined 7.76-ha., will be used to expand its business in line with the rising demand for both domestic and international markets.

The acquisition will be funded via a combination of bank borrowings and internally generated funds, with the exact breakdown to be determined later. The acquisition is expected to be completed within four months from the date of the agreement. (The Edge Daily)

Puncak Niaga Holdings Bhd has entered into a heads of agreement (HoA) with TRIplc Bhd to commence talks for the potential acquisition of the latter's businesses.

TRIplc is involved in property construction, development and investment, and the provision of project management services and facilities management. (The Edge Daily)

Malaysia Marine and Heavy Engineering Holdings Bhd (MHB), a 66.5%-owned subsidiary of MISC Bhd, will start focusing on its marine business in 2016 amid a slowdown in the offshore oil and gas (O&G) sector.

MHB is targeting revenue of RM640.0 mln from the marine segment in 2016, up 37.1% recorded in the previous year. MHB also plans to spend RM500.0 mln in capital expenditure for its third dry dock over the next few years. (The Edge Daily)

Affin Holdings Bhd is expecting loan growth to be flat at 7.0% for 2016, citing subdued economic growth as a factor. Affin’s CEO, Kamarul Ariffin has noted that while the group will not have to incur significant impairment and voluntary separation scheme costs like in 2015, the banking sector is still inevitably exposed to the country's slower economic growth pace. In 2015, Affin's loan grew at 6.9% Y.o.Y to RM43.9 mln. (The Edge Daily)

Source: M+ Online Research - 19 Apr 2016