• The FBM KLCI endured a choppy session yesterday before some last minute buying support enabled the FBM KLCI (+0.3%) to close near its intraday high. The lower liners – FBM Small Cap (- 0.8%), FBM Fledgling (-0.7%) and FBM Ace (-0.9%), however, all fell, while the Consumer Products (-0.2%), Construction (-0.1%) and Properties (-0.2%) sub-indices underperformed in the broader market.
• Market breadth was negative as losers outpaced gainers on a ratio of 510-to-302 stocks. Traded volumes were flat with 1.73 bln shares exchanging hands.
• Two-thirds of the key index constituents rose, led by Petronas Gas (+34.0 sen), followed by BAT (+2.0 sen), Maxis (+15.0 sen), RHB Capital (+14.0 sen) and PPB Group (+12.0 sen). Meanwhile, Nestle (+48.0 sen), Heineken (+28.0 sen), Globetronics (+26.0 sen) and Carlsberg (+22.0 sen) were amongst the biggest gainers on the broader market. Ajiya added 8.0 sen after proposing corporate exercises involving a share split and bonus issue.
• In contrast, Petron Malaysia (-76.0 sen), Ajinomoto (-50.0 sen), Dutch Lady (-44.0 sen), Latitude Tree (-40.0 sen) and TAHPS Group (-27.0 sen) were among the biggest decliners on the broader market. Both UMW (-25.0 sen) and Genting (-12.0 sen) topped the decliners list on the FBM KLCI after reporting a slump in their quarterly earnings, while other big board losers were KLCC (-3.0 sen), Tenaga (-2.0 sen) and Maybank (-1.0 sen).
• Japanese stockmarkets rebounded as the Nikkei rose 1.6% after the Japanese Yen weakened on the strong U.S. housing data. The Hang Seng Index jumped 2.7%, led by mining stocks on a potential increase on coal prices in June, but the Shanghai Composite fell 0.2%. ASEAN indices, meanwhile, closed mostly positive.
• U.S. stockmarkets advanced for the second straight session as the Dow added 0.8% to close near its one-month high. On the broader market, the S&P 500 ended 0.7% higher, anchored by gains from the energy sector after crude oil prices rally to close marginally below the US$50 per barrel level.
• European benchmark indices – the FTSE (+0.7%), CAC (+1.1%) and DAX (+1.5%) all rose as investors cheered the deal to unlock more bailout funds (€10.3 bln) for Greece. Meanwhile, Germany’s Ifo business climate index in May rose to 107.7 – stronger than economists’ estimates of 106.8.

THE DAY AHEAD

• Despite the generally mixed-to-lower market environment, the FBM KLCI managed to close at the 1,630 level yesterday on the back of the last minute push on selected heavyweights to potentially start an overdue rebound from oversold. This could also mean that the mild uptrend may sustain over the near term as there should be continuing support from domestic institutions to help to nullify some of the effects of the pronounced foreign selling, which has been exiting the market on anticipation of an interest rate hike in the U.S. next month.
• The continuing recovery on most key global indices will also provide some impetus for the FBM KLCI’s near term recovery and the next target is set at around the 1,640 level, before the 1,650 level comes into play. The 1,620 level remains the main support for now, followed by a major support at the 1,600 level.
• While we think that there should be further near term upsides on index-linked stocks, the general market environment is expected to remain mixed due to the weaker corporate results that would leaving more investors on the sidelines.

COMPANY UPDATE

• Protasco Bhd’s 1Q2016 net profit improved marginally by 1.9% Y.o.Y to RM13.4 mln as the strong contributions from both the construction and property development segments offset the weaker earnings from the maintenance segment. Revenue for the quarter, however, sank 42.0% Y.o.Y to RM127.1 mln.
• The reported earnings and revenue amounted to only 19.1% and 9.8% of our full year net profit and revenue forecast of RM70.0 mln and RM1.30 bln respectively.

Comments

• Although the reported earnings were relatively lower vs. our forecast, we think that the earnings should recover in coming quarters, given that the first quarter results are historically softer due to seasonal factors and the full effects of the recently renewed 10-year maintenance contract for Federal Roads in Pahang, Terengganu, Kelantan and Selangor has yet to be felt. Hence, we leave our earnings forecast unchanged and we maintain our BUY recommendation on Protasco with an unchanged target price RM2.40.
• 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 3QFY16 net profit added 43.0% Y.o.Y to RM17.9 mln, owing to the higher contributions from its ongoing foundation work on property development projects, which yields higher margins compared to piling works for infrastructure projects. Revenue for the quarter improved 7.0% Y.o.Y to RM122.1 mln.
• For 9MFY16, cumulative net profit gained 49.9% Y.o.Y to RM49.0 mln. Revenue for the period rose 2.6% Y.o.Y to RM333.7 mln. The reported earnings came in slightly above our expectation; accounting to 78.9% of our previous FY16 estimated net profit of RM62.1 mln, while the reported revenue was in line with our expectation, accounting to 75.2% of our full year revenue forecast of RM443.9 mln.
• Econpile has secured some RM419.3 mln worth of construction contracts up to 9MFY16, accounting to 93.2% of our targeted orderbook replenishment rate of RM450.0 mln for FY16.
• The award of the new projects brings its total outstanding construction orderbook to approximately RM630.0 mln, implying an orderbook-to-cover ratio of 1.5x against FY15 revenue of RM429.0 mln, which will provide earnings visibility over the next 18 months.
• With the reported earnings coming slightly above our estimates, we raised our earnings forecast for FY16 and FY17 upwards by 3.1% and 1.8% to RM64.0 mln and RM68.4 mln respectively, to reflect the efficient project execution which has led to the continued improvement in margins.
• We also maintain our BUY recommendation on Econpile with a higher target price of RM1.50 (from RM1.45). Our target price is derived from ascribing a target PER of 11.0x to its revised FY17 EPS of 13.5 sen, which is in line with its peers with similar market capitalisation.
• Barakah Offshore recorded a 91.1% drop in its 1Q2016 net profit to RM1.7 mln. The substantial decline was attributable to the high revenue base recognition from its T&I project in 1Q2015 and completion of the lower value works for its Pipeline and Commissioning Services in the quarter under review.
• Revenue for 1Q2016 fell by 45.9% Y.o.Y to RM103.3 mln, from RM191.0 mln in 1Q2015. The significant drop in revenue was due to the general slowdown in the oil and gas industry, which resulted in poor market sentiment that is permeating across both onshore and offshore companies.
• The results were below expectations, but given the recent piping contract securement from PRPC Utilities and Facilities Sdn Bhd and consistent work order flows that were undertaken in the 1Q2016, the management sees better prospects from 2Q2016 onwards
• Also, we expect the internal cost control measures that were undertaken in 2015 to bolster its profitability margins from 2Q2016 onwards, which is similar to the management’s guidance. However, the potential securement of future projects carries lesser profitability margins (vs. profitability margins in 2014) may offset the aforementioned cost savings as new work orders from Petronas are increasingly more cost competitive.
• Nevertheless, we maintain our HOLD recommendation, with an unchanged target price of RM0.68 by ascribing an unchanged PER of 15.5x to our unchanged fully diluted 2017 EPS estimate of 4.4 sen. The company is well supported by its unbilled orderbook of RM1.60 bln (with earnings visibility up until 2017-2018) and the management remains active in its project pre-qualification and bidding participation with a bidbook size of around RM1.7 bln for both local and overseas projects.

COMPANY BRIEFS

• Kelington Group Bhd has secured a RM70.0 mln contract from Meranti Tiga Sdn Bhd which involves civil and structural works, as well as mechanical and electrical services. The project, which is located in Batang Padang, Perak is slated to be completed by September 2017. (The Edge Daily)
• Telekom Malaysia Bhd’s 1Q2016 net profit surged 150.0% Y.o.Y to RM322.4 mln from RM128.9 mln a year ago, on the back of stronger operating profit and net finance income. Revenue for the quarter was up marginally by 3.3% Y.o.Y to RM2.86 bln from RM2.77 bln in 1Q2015. (The Star Online)
• Sime Darby Bhd reported a 60.0% Y.o.Y growth in its 3QFY16 net profit from RM414.6 mln in the previous corresponding period, to RM663.4 mln due to its asset monetisation exercise.
• The exercise involved the deconsolidation of the property division's two subsidiaries in Singapore for RM406.3 mln. The gain on compulsory land acquisition for the Damansara-Shah Alam Elevated Expressway and West Coast Expressway of RM138.7 mln also contributed to the net profit jump. Revenue for the quarter was up by 2.3% Y.o.Y to RM10.23 bln, in comparison to RM10.0 bln in the last corresponding period.
• For the cumulative 9MFY16, however, Sime Darby’s net profit fell to RM1.27 bln from RM1.43 bln in 9MFY15, despite the increase in revenue of 4.4% Y.o.Y to RM32.23 bln. The fall in earnings was mainly attributed to the higher operating expense. (The Star Online)
• RHB Capital Bhd’s 1Q2016 net profit climbed 16.0% Y.o.Y to RM552.0 mln from a year earlier, buoyed by higher net interest and Islamic banking income, in addition to cost-efficiency measures. Meanwhile, revenue was higher at RM2.73 bln versus RM2.70 bln. (The Star Online)
• TSH Resources Bhd's net profit grew more than eight-fold to RM54.7 mln in 1Q2016 from RM6.4 mln a year ago, mainly due to a forex gain of RM39.2 mln. Revenue, however, came in 1.8% Y.o.Y lower at RM202.3 mln compared with RM206.0 mln in 1Q2015. (The Edge Daily)
• WCT Holdings Bhd reported a 73.4% Y.o.Y plunge in its 1Q2016 net profit to RM8.8 mln from RM33.2 mln in the last corresponding period, dragged by an unrealised foreign exchange loss of RM23.1 mln. This is despite revenue growing 37.9% Y.o.Y to RM485.0 mln, on higher contribution from the group's local construction and property development divisions. (The Edge Daily)
• Dayang Enterprise Holdings Bhd sunk into the red with a 1Q2016 net loss of RM26.4 mln, compared to a net profit of RM34.4 mln a year ago. The fall in its bottom line was mostly contributed by the lower revenue that fell from RM190.1 mln in 1Q2015 to RM 111.8 mln in 1Q2016, as well as higher finance expenses. (The Edge Daily)
• Berjaya Assets Bhd (BAssets) slipped into the red in 3QFY16, posting a net loss of RM2.6 mln, against a net profit of RM19.0 mln last year, resulting from weaker performance of its gaming business segment operated by Natural Avenue Sdn Bhd (NASB). Meanwhile, quarterly revenue shed 7.8% Y.o.Y to RM97.8 mln from RM106.1 mln in 3QFY15.
• Similarly, cumulative 9MFY16 net profit dived 83.4% Y.o.Y to RM11.1 mln from RM66.6 mln in the previous corresponding period, mainly due to lower other income and higher finance costs. Revenue also fell to RM288.9 mln from RM309.5 mln in 9MFY15.
• Separately, BAssets has announced the resignation of its Executive Director Tan Thiam Chai with effect from 31st May, 2016 due to other work commitments and responsibilities.
• Datuk Dickson Tan Yong Loong, a Non-Independent and Non-Executive Director of BAssets, will also step down from his post on the same day. (The Edge Daily)
• Boustead Holdings Bhd registered a 1Q2016 net loss of RM21.5 mln vs. a net profit of RM0.1 mln a year ago, after its heavy industries division took a hit, while, revenue for the quarter was slightly lower at RM1.86 bln from the previous corresponding period’s RM1.89 bln.
• Despite the negative earnings, the group declared a first interim dividend of five sen per share. (The Star Online)
• Axiata Group Bhd’s 1Q2016 net profit declined 37.0% Y.o.Y to RM368.3 mln from RM584.8 mln a year ago, on the back of lower profits from its Malaysian and Bangladeshi mobile telecommunication network operations as well as higher operating cost. Revenue, on the other hand, rose to RM5.01 bln from RM4.75 bln reported last year. (The Edge Daily)

Source: M+ Online Research - 26 May 2016