The FBM KLCI traded mostly in the negative territory yesterday, before closing 0.2% lower to mark its second consecutive losing streak. The lower liners also ended mostly lower with the exception of the FBM Small Cap (+0.2%), while the Industrial Products (+0.1%), Technology (+1.6%) and Properties (+1.1%) sub-indices outperformed the mostly negative broader market.

Market breadth stayed negative as losers outnumbered gainers on a ratio of 434- to-356 stocks. Traded volumes, however, jumped 73.1% to 2.69 bln shares as selected foreign funds rebalanced their portfolio in accordance to the change in the MSCI weightage on Malaysia stocks.

BAT (-56.0 sen) led the big board decliners list, followed by Petronas Dagangan (-20.0 sen), Genting (-13.0 sen), Maybank (-7.0 sen) and UMW (-6.0 sen). Notable losers on the broader market include Aeon Credit (-28.0 sen), Ajiya (-22.0 sen), Genting Plantations (- 22.0 sen), Pestech (-17.0 sen) and Heineken (-14.0 sen).

On the other side of the trade, P.I.E. Industrial (+68.0 sen), United Plantations (+68.0 sen), Nestle (+46.0 sen), Scientex (+38.0 sen) and Kossan (+23.0 sen) were amongst the biggest gainers on the broader market. Meanwhile, MISC (+12.0 sen), Telekom (+5.0 sen), PPB Group (+4.0 sen), Wesports (+4.0 sen) and YTL (+2.0 sen) topped the key index gainers list.

Asia benchmark indices closed higher as the Nikkei (+1.0%) recorded its fifth consecutive day of winning streak, lifted by the weaker Japanese Yen against the U.S. Dollar. The Hang Seng Index closed 0.9% higher, while the Shanghai Composite jumped 3.3% on optimism that the odds of mainland Chinese stocks winning MSCI inclusion increased. ASEAN indices, meanwhile, closed mostly positive.

U.S. stockmarket ended mostly lower as the Dow fell 0.5% after the Federal Reserve Chairwoman, Janet Yellen signaled that interest rate hikes would be appropriate in the next couple of months. On the broader market, the S&P 500 declined 0.1%, dragged down by weakness in energy and basic material stocks, albeit the Nasdaq closed 0.3% higher to register a 3.6% M.o.M gain.

Earlier, European benchmark indices – the FTSE (-0.6%), CAC (-0.5%) and DAX (-0.7%), all fell as market sentiment turned cautious ahead of both the OPEC and European Central Bank meeting this week. Italian banks like Banco Populare (-7.3%), UniCredit (-4.0%) and BMPS (-3.0%), tanked after the Bank of Italy warned that the country’s debt might not decline in 2016.

THE DAY AHEAD

Despite the hefty selling on selected index heavyweights ahead of the change on the country’s weightage on the MSCI, the key index has held up well and to stay within its projected range. We think that yesterday’s selective selling is a one-off event and is unlikely to persist over the near term, albeit there could still be pockets of foreign selling remaining.

Consequently, we think the mostly rangebound trend within the 1,620-1,650 levels will continue over the near term, albeit market confidence has yet to recover and the insipid market trend is likely to continue. This is likely to keep most investors on the sidelines and upsides could be capped by quick profit taking activities.

COMPANY BRIEFS

Mitrajaya Holdings Bhd’s wholly owned subsidiary, Pembinaan Mitrajaya Sdn Bhd has accepted a contract from Punj Lloyd Sdn Bhd for Road, Drainage, Culvert and Duct Bank Works Package at the RAPID Project for a contract sum of US 12.6 mln (RM52.4 mln). The contract is undertaken in two phases. Phase-I work shall be completed within seven months from 31st May 2016. Phase-II work shall be completed within six months from the effective date of 2nd October 2017 with expected completion date of 2nd April 2018.

Comments

The abovementioned project brings its construction orderbook replenishment to RM502.7 mln YTD, accounting to 71.8% our targeted orderbook replenishment rate of RM700.0 mln. Similar with previous construction projects, we estimate that the project could command a pretax margin of about 11%-12%. Mitrajaya’s outstanding orderbook stands at approximately RM1.69 bln, which will provide earnings visibility over the next two years.

With the contract falling within our targeted orderbook replenishment rate, we leave our earnings forecast unchanged and we reiterate our BUY recommendation on Mitrajaya with an unchanged target price of RM1.70.

Our target price is derived from a sum-of-part basis by ascribing a targeted PER of 11.0x to its fully diluted 2016 construction earnings and a PER of 9.0x to its fully diluted healthcare earnings due to its smaller scale business, while the value of its property development units, both local and overseas, are valued at 0.8x of its book value after accounting for the full conversion of its Warrants.

COMPANY BRIEFS

SapuraKencana Petroleum Bhd's joint-venture has found gas at two of the three wells within the Block SK408 production sharing contract (PSC) area, offshore Malaysia.

The first well, Jerun-1 lies about 5km north of the 2014 Bakong gas discovery and has an interpreted gross gas column of about 800m in the primary target reservoir and is a multi-TCF gas discovery.

Meanwhile, the second well, Jeremin-1 is about 15km west of the F9 gas field where they encountered a 104m gross gas column. The third well, Putat-1, located 20km north of the Cili Padi gas field, is confirmed as a dry hole.

SapuraKencana Energy is the exploration operator with a (40.0%) working interest with partners Petronas Carigali Sdn. Bhd (30%) and Sarawak Shell Bhd (30%) holding the remaining interest. (The Star Online)

Kawan Food Bhd registered a 21.4% Y.o.Y fall in its 1Q2016 net profit to RM4.4 mln, despite revenue growing 11.3% Y.o.Y to RM41.5 mln from RM37.3 mln in the previous corresponding period, mainly due to in foreign exchange (forex) losses as the U.S. Dollar strengthened against the Ringgit.

Bumi Armada Bhd’s 1Q2016 net profit plunge 67.5% Y.o.Y to RM23.4 mln compared to RM72.0 mln in the last corresponding year, dragged down by a non-cash impairment charge of RM17.9 mln. Revenue also fell to RM430.8 mln from RM572.2 mln in 1Q2015. As at end-March 2016, the group’s total order book stood at RM36.4 bln. (The Star Online)

Kerjaya Prospek Group Bhd (KPG) has secured a RM172.4 mln building works contract from EcoWorld Development Bhd. The 25-month contract is for the main building works for an apartment project in Selangor starting in June and slated for completion by July 2018.

The company has also received a letter of award from a related party, Kerjaya Prospek Property Sdn Bhd, for another contract worth RM106.0 mln. KPG's current outstanding orderbook stands at RM2.64 bln, while the total new contracts secured for the year stands at RM875.0 mln, above its annual targeted orderbook replenishment rate of RM600.0 mln. (Bernama)

Stationery maker, Asia File Corp Bhd’s 4QFY16 net profit gained 31.0% Y.o.Y to RM16.9 mln from RM12.9 mln a year ago, on the back of improved margins, despite a lower revenue at RM97.3 mln vs RM100.8 mln registered in the previous corresponding period.

For FY16, the group’s net profit soared 52.5% Y.o.Y to RM76.5 mln from RM50.2 mln, attributable to lower operating expenses. Meanwhile, revenue rose slightly by 0.6% Y.o.Y to RM389.8 mln against RM387.4 mln in FY15. (The Star Online)

PPB Group Bhd registered a marginal 5.7% Y.o.Y increase in its 1Q2016 net profit to RM246.2 mln from RM232.9 mln in 1Q2015, mainly due to higher performance by its film exhibition and distribution, on top of increased profit contribution from its associate, Wilmar International Ltd. Similarly, revenue rose 14.9% Y.o.Y to RM1.12 bln against RM977.0 mln in the previous corresponding period. (Bernama)

SMTRACK Bhd sunk into the red after it announced a 4QFY16 net loss of RM2.2 mln from a RM311,000 net profit in the previous corresponding quarter, due to an allowance for doubtful debts of RM520,000. Revenue, however, rose more than three-fold to RM151,000 compared to RM45,000 a year earlier.

Its cumulative FY16 net loss, however, was reduced to RM8.9 mln as opposed to RM9.9 mln in 4QFY15, mainly due to reduction in administrative cost and an impairment loss made in the previous corresponding year. Revenue for FY16 was higher at RM3.4 mln from RM2.0 mln a year ago.

Malaysian Resources Corp Bhd (MRCB) is planning to hit a sales target of RM1.0 bln from its property segment. The company plans to launch RM2.2 bln worth of property projects, including Sentral Suites, Menara MRCB in Putrajaya, Prima homes in Kajang and its project in Bandar Sri Iskandar.

For its construction segment, the group’s orderbook currently stands at of over RM4.0 bln. (The Star Online)

Lay Hong Bhd edged into the red with a 4QFY16 net loss of RM12.6 mln, in comparison to a 4QFY15 net profit of RM4.5 mln, dragged down by a one-off charge for share-based expense of RM15.1 grant under the Employee Share Option Scheme (ESOS). Revenue for the quarter also shed 4.9% Y.o.Y to RM163.1 mln.

For FY16, itsnet profit plunge 85.4% Y.o.Y to RM2.7 mln from RM18.7 mln a year ago, on the back of weakening revenue that was 3.9% Y.o.Y lower at RM645.8 mln and the one-off ESOS expense.

DRB-Hicom Bhd recorded a 4QFY16 net loss of RM790.8 mln from a net profit of RM89.8 mln last year, mainly due to weaker performance of its automotive business, Proton, while revenue fell 18.1% Y.o.Y to RM2.63 bln from RM3.21 bln previously.

The company posted a full year net loss of RM991.9 mln, higher that the RM300.2 mln recorded in FY15, also mainly dampened by Proton’s results. Meanwhile, revenue stood at RM12.17 bln, which represented a 11.6% Y.o.Y fall from RM13.69 bln recorded a year ago.

Despite foreseeing a challenging business environment, DRB-Hicom remains confident of Proton’s turnaround plan, which requires a RM1.5 bln soft loan from the government. (The Star Online)

Source: M+ Online Research - 1 June 2016