• The FBM KLCI (+0.01%) advanced for the second straight session yesterday, lifted by gains in selective banking and oil & gas heavyweights. The lower liners indices – FBM Small Cap (-0.04%), FBM Fledgling (-0.1%) and FBM Ace (-0.9%), however, continue to edge lower, while the broader market ended on a mixed note.
• Market breadth stayed negative as losers outstripped gainers on a ratio of 475-to- 315 stocks. Traded volumes fell 15.0% to 1.47 bln shares amid the lack of fresh local leads.
• Amongst the biggest advancers on the key index were banking and oil & gas heavyweights like RHB Capital (+12.0 sen), Petronas Dagangan (+12.0 sen), Petronas Gas (8.0 sen) and Maybank (+7.0 sen), while PPB Group climbed 24.0 sen. Notable gainers on the broader market include Batu Kawan (+30.0 sen), Scientex (+20.0 sen), Ajiya (+17.0 sen) and Fraser & Neave (+14.0 sen). Versatile Cretive rose 7.0 sen, despite being queried by Bursa Securities for its abnormal trading pattern for the second time in a month.
• Among losers, Ajinomoto (-26.0 sen), topped the broader market losers lists, followed by EITA Resources, Kossan, Oriental Food Industries and WCT, all of which fell 15.0 sen each. Amongst the biggest decliners on the big board were BAT (-86.0 sen), AmBank (-18.0 sen), UMW (-15.0 sen), Hong Leong Financial Group (-10.0 sen) and Public Bank (-8.0 sen).
• Asia benchmark indices rose yesterday as the Nikkei gained 0.1%, but closed near its intraday low as the Japanese Yen see-saws against the U.S. Dollar. The Hang Seng Index added 0.1% to close positive in the final trading hour, while the Shanghai Composite closed 0.3% higher, led by gains in energy stocks. ASEAN indices, meanwhile, closed mostly positive.
• Investors brushed off the stronger-than-expected data from durable goods orders in April, which rose 3.4% M.o.M vs. economists’ estimates of 0.5% rise as Dow fell 0.1%. On the broader market, the S&P 500 closed 0.02% lower as gains were limited by the weakness in oil prices, albeit the Nasdaq climbed 0.1%.
• Elsewhere, the FTSE added 0.04% after enduring a volatile trading session. Both the CAC and DAX added 0.7% each as investors was closely watching the developments on the G7 summit talks in Japan.

THE DAY AHEAD

• As it is, the buying interest remains mostly insipid due to the continuing selldown of Malaysian stocks by foreign funds, while local funds are just nibbling on selected banking and oil & gas stocks amid the rising crude oil prices.
• With the selective buying sustaining, we see the insipid market conditions continuing over the near term as most investors are likely to stay on the sidelines amid the lack of fresh catalysts. This means that the FBM KLCI is also likely to veer between the 1,620-1,650 levels for the time being.
• In the near term, however, there could be further upsides as we expect institutional funds to continue nibbling on selected banking and oil & gas stocks, but the market gains will be limited. The lower liners and broader market will also continue to experience a mixed-to-lower environment ahead of the weekend.

COMPANY UPDATE

• Engtex Group Bhd’s 1Q2016 net profit gained 8.4% Y.o.Y to RM14.7 mln on the back of higher average selling prices (ASP) of certain manufactured steel products and metal-related trading products, which offsets the weak contribution from property development segment. Revenue for the quarter, however, fell 14.7% Y.o.Y to RM261.4 mln.
• Its earnings are slightly above expectations as its net profit accounted to 28.2% of our estimated net profit of RM52.0 mln, while revenue was slightly below forecast at 21.0% of our total revenue of RM1.24 bln.
• Separately, Engtex has bagged an RM25.0 mln contract from Syarikat Bekalan Air Selangor Sdn Bhd (Syabas) to supply Ductile Iron (DI) pipes as part as Selangor’s water pipe replacement programme. No further details on the projects were provided.

Comments

• As the reported earnings came slightly above our estimates, we raised our earnings forecast by 15.4% and 20.1% to RM60.0 mln and RM62.9 mln in 2016 and 2017 respectively to reflect the stronger margins from higher ASP.
• Consequently, we upgrade Engtex’s recommendation to BUY (from Hold) with a higher target price at RM1.35 (from RM1.20) as we ascribe an unchanged target PER of 6.0x to our revised 2016 forecast earnings of its manufacturing and wholesale and distribution businesses, in line with its historical PER. Its property development segment’s valuation, meanwhile, remain unchanged at 0.6x its BV, based on its relatively small-scale property development projects.
• Mitrajaya Holdings Bhd’s 1Q2016 net profit gained 37.8% Y.o.Y to RM18.5 mln, on higher contribution across all its three main segments; the construction segment growth was driven by the completion of LRT stations for the Ampang & Kelana Jaya extension line and the business operation complex in Shah Alam, while the improvement in both its local property sales and South Africa property segment also contributed to the improvements. Revenue for the quarter rose 21.0% Y.o.Y to RM195.5 mln.
• Despite the above improvements, its reported earnings and revenue was slightly below expectations, accounting to 19.2% and 20.1% of our full year estimated net profit and revenue of RM95.9 mln and 972.5 mln respectively.

Comments

• Although the reported earnings were lower vs. our forecast, we think that the earnings should recover in the upcoming quarters, given that its first quarter results are historically softer, while three- of-the ten major projects secured recently and yet to reach critical recognition stages. Hence, we leave our earnings forecast unchanged and we maintain our BUY recommendation on Mitrajaya with an unchanged target price RM1.70.
• Our target price is derived from ascribing a target PER of 9.0x to its 2017 (fully diluted) construction EPS of 9.4 sen, while the value of its property development units, both local and overseas, are valued at 0.8x of their respective book values.
• Oldtown Bhd’s 4QFY16 net profit jumped 80.4% Y.o.Y to RM18.4 mln, primarily on lower distribution and selling expenses incurred during the quarter, which offsets the weakness in operation of café chain segment. Revenue for the quarter gained 3.9% Y.o.Y to RM104.5 mln.
• For FY16, cumulative net profit rose 10.1% Y.o.Y to RM52.3 mln. Revenue for the year, however, fell marginally, by 1.1% Y.o.Y to RM393.4 mln.
• The reported earnings came in above our expectations as it accounts to 122.9% our full year estimated net profit of RM42.5 mln, while the reported revenue came within our expectations, accounting to 99.6% of our FY16 revenue forecast of RM394.8 mln. The variance in earnings is mainly due to the lower depreciation expenses, coupled with lower corporate tax rate at 23.4% vs our forecast of 27.0%
• Although the reported earnings came in above our estimates, we leave our earnings estimates unchanged, pending an analyst briefing later. For now, we reiterate our HOLD call on Oldtown with an unchanged target price of RM1.60. Our target price is derived from ascribing a target PER of 16.0x to our FY17 net EPS of 10.1 sen. The targeted PER is based on a discount to the 20x-22x average PER of consumer products market leaders like Nestle and Dutch Lady due to Oldtown’s smaller market capitalisation.

COMPANY BRIEFS

• Eastern & Oriental Bhd (E&O) has announced the re-designation of its founder and former Managing Director (MD), Datuk Seri Tham Ka Hon as its Executive Deputy Chairman effective 1st July, 2016. Datuk Tham will be replaced by Kok Tuck Cheong, while its deputy MD, Eric Chan Kok Leong has resigned due to the expiry of employment contract and family reason.
• Meanwhile, E&O slipped into red with a 4QFY16 net loss of RM14.8 mln compared to a net profit of RM100.5 mln a year ago. Revenue, however, was up 4.2% Y.o.Y to RM149.0 mln from RM143.0 mln in 4QFY15.
• Its FY16 net profit fell 75.8% Y.o.Y to RM36.8 mln from RM152.1 mln in the previous corresponding year, due to higher cost of sales and lower other income, while revenue shed 6.3% Y.o.Y to RM421.2 mln from RM449.5 mln.
• Separately, the company noted that it has achieved its targeted property sales totaling to RM1.1 bln for the FY16. (The Edge Daily)
• Versatile Creative Bhd, which was slapped with two Unusual Market Activity (UMA) queries from Bursa Malaysia this month, disclosed that it has received an offer to undertake the construction of a plant.
• The details of the potential contract, however, was undisclosed and the company said that it will reach a decision on the offer as soon. (The Edge Daily)
• AirAsia Bhd‘s registered more than a five times jump in its 1Q2016 net profit to RM877.8 mln from RM149.3 mln a year earlier, propelled by higher passenger traffic and lower fuel costs. Revenue for the quarter rose 31.0% Y.o.Y to RM1.70 bln from RM1.30 bln in 1Q2015. (The Star Online)
• CIMB Group Holdings Bhd's 1Q2016 net profit jumped 40.3% Y.o.Y to RM813.8 mln, in comparison to RM580.1 mln in 1Q2015, aided by lower costs and provisions. Meanwhile, revenue increase slightly by 1.2% Y.o.Y to RM3.73 bln from RM3.68 bln in the previous corresponding period.
• The group's loan-to-deposit ratio stood at 90.6% in 1Q2016 compared to 90.3% in 1Q2015, while its cost to-income-ratio was lower at 57.4%, compared to 58% in the previous year.
• Its net interest margin was lower at 2.62%, attributed to the higher cost of deposits in Malaysia.
• Moving forward, CIMB continues to adopt a cautious view on its balance sheet growth, while focusing on cost management, asset quality, capital management and governance amid the challenging environment. (The Star Online)
• Brahim's Holdings Bhd’s 51.0%-owned subsidiary, Brahim's SATS Food Services Sdn Bhd’s collaboration with 7-Eleven Malaysia Holdings Bhd has come into effect following the signing of a service agreement yesterday.
• Under the partnership, Brahim's SATS will plan, develop, and create menu specifications and products to be marketed through 7-Eleven's convenience stores. 7-Eleven will, in turn, will provide a centralised distribution centre for Brahim's SATS to deliver its products.
• Separately, Brahim reported that its Memorandums of Understanding (MoUs) with Servair Investissments Aeroportuaries (S.I.A.) and Dhyafat Albalad Alameen Co Ltd has lapsed. (The Edge Daily)
• Malaysian Resources Corp Bhd (MRCB) has been appointed as a project delivery partner (PDP) for the development of Kwasa Damansara township's main infrastructure by Employees Provident Fund's (EPF) on 26th May 2016.
• Its work scope includes the project management related to the design, procurement and construction of the main infrastructure within 640 ha. (1,600 acres) in Kwasa Damansara. MRCB expects to earn a PDP fee of 5.0% of the development cost estimated at RM2.20 bln. (The Star Online)
• IJM Corp Bhd saw its 4QFY16 net profit plunge 55.0% Y.o.Y to RM44.2 mln, mainly due to weaker contributions from the construction, property development, and manufacturing & quarrying segments, in addition to net unrealised forex losses. Meanwhile, quarterly revenue slipped 19.0% Y.o.Y to RM1.17 bln.
• For FY16, IJM Corp's net profit jumped 65.0% Y.o.Y to RM793.6 mln from RM480.9 mln in FY15, on the back of higher other operating income and lower finance cost. Revenue, however, slipped 5.9% Y.o.Y to RM5.13 bln from RM5.45 bln in FY15
• The group has also proposed a total dividend of seven sen a piece, comprising a special dividend of three sen a share and a single-tier second interim dividend of four sen a share. (The Edge Daily)