Despite opening lower at the start of the trading bell, the FBM KLCI was in the positive territory for most of the trading session before closing 0.3% higher, lifted by strong buying interest in selected banking heavyweights. The lower liners also ended higher, while the Industrial Products (-0.4%), Construction (-0.1%) and Properties (-0.3%) sub-indices underperformed the positive broader market.

Market breadth turned positive as gainers outnumbered losers on a ratio of 468-to- 333 stocks. Traded volumes rose 29.6% to 1.75 bln share, owing to the positive market sentiment.

Banking heavyweights like Public Bank (+12.0 sen), CIMB (+5.0 sen), AmBank (+4.0 sen) and Maybank (+4.0 sen) rose, while Sime Darby added 8.0 sen. Among the biggest gainers on the broader market were Chin Teck Plantations (+37.0 sen), Lii Hen (+21.0 sen), SAM Engineering (+21.0 sen) and Alliance (+18.0 sen). Scomi Engineering jumped 2.5 sen after bagging additional works for a monorail project in Sao Paulo, Brazil worth RM504.6 mln.

On the other side of the trade, Scientex (- 32.0 sen), Ajinomoto (-22.0 sen), DKSH (- 12.0 sen), Hume Industries (-10.0 sen) and O&C Resources (-9.5 sen) were amongst the notable decliners on the broader market. Hong Leong Bank (-14.0 sen) topped the big board losers lists, followed by Petronas Gas (-10.0 sen), Petronas Chemicals (-8.0 sen), BAT (-8.0 sen) and Westports (-5.0 sen).

Japanese stockmarkets tanked for the second straight session with the Nikkei closing 2.3% lower as investors reacted negatively towards the delayed sales tax hike to October 2019 (originally in 2017). The Shanghai Composite closed 0.4% higher, while the gains from financial and properties stocks sent the Hang Seng Index 0.5% higher. ASEAN indices, meanwhile, closed mixed.

Wall Street closed higher for the second straight session as the Dow ended 0.3% higher after crude oil prices recovered towards the US$50 per barrel level. The S&P 500 climbed 0.3% to close at its seven-month high, anchored by gains from the healthcare sector (+1.3%), while the Nasdaq added 0.4%.

European benchmark indices traded in a volatile manner as both the FTSE and CAC fell 0.1% and 0.2% respectively. The DAX (+0.03%), however, closed marginally higher. Meanwhile, the European Central Bank has kept interest rate unchanged at record low of 0%.

THE DAY AHEAD

Despite the general lack of domestic catalysts, couple with the cautiousness over the upcoming FOMC meeting and the Brexit referendum later this month, the Malaysia stockmarket is showing some signs of recovery as the foreign selling are abating.

This has allowed for some light bargain hunting activities yesterday on some of the beaten down industry leaders and we think the bargain hunting activities could persist over the near term as the FBM KLCI continues to build up a base around the 1,620-1,650 levels.

The upsides, however, may continue to be mild on account of the likelihood of quick profit taking activities that will limit the gains. At the same time, the still cautious market environment could also limit retail investors’ participation as well as the interest on the lower liners.

COMPANY UPDATE

Econpile Holdings Bhd‘s wholly-owned subsidiary, Econpile (M) Sdn. Bhd has received a Letter of Award from Oxley Rising Sdn. Bhd. to undertake bored piling and pilecaps, diaphragm walls, earthworks, foundation and substructure works of a mixed commercial development comprising of hotels, branded residences, offices and retails at Lot 99, Jalan Ampang, Seksyen 58, Kuala Lumpur. The value of the contract is RM208.0 mln and is expected to be completed in 26 months.

Comments

The aforementioned project marks the single highest value contract secured by Econpile since its listing on 30th June 2014. We estimate that the project could command an EBITDA margin of about 22%-24%, in line with the average piling works for property projects recorded by the group in recent years.

With the incorporation of the abovementioned contract, Econpile’s orderbook replenishment of RM527.3 mln came above our targeted orderbook replenishment rate of RM450.0 mln for the full financial year.

Concurrently, the group’s outstanding orderbook has swell to approximately RM838.0 mln, which will provide earnings visibility over the next 24 months.

Given that the aforementioned contract came above our construction orderbook replenishment rate, we raised our net earnings forecast by 6.5% and 10.8% to RM72.8 mln and RM76.4 mln in FY17 and FY18 respectively. We also maintain our BUY recommendation on Econpile with a higher target price of RM1.60 (from RM1.50).

Our target price is derived from ascribing an unchanged target PER of 11.0x to its higher FY17 EPS of 14.4 sen. The ascribed PER is in line with peers with similar market capitalisation and the construction industry average.

COMPANY BRIEFS

KESM Industries Bhd's 3QFY16 net profit rose more than fourfold to RM7.6 mln from RM1.7 mln in the preceding year’s quarter, on the back of higher sales from its electronic manufacturing services. Meanwhile, revenue for the quarter increase by 12.5% Y.o.Y to RM70.8 mln from RM62.9 mln a year earlier.

Cumulative 9MFY16 net profit jumped 244.0% Y.o.Y to RM22.6 mln from RM6.6 mln a year ago, buoyed by higher revenue of RM211.2 mln which represented a 8.8% Y.o.Y increase from RM194.2 mln in 9MFY16. (The Edge Daily)

WZ Satu Bhd has secured two contracts worth RM65.4 mln from Petrofac Ltd. The contracts are part of a package related to the Petronas Refinery and Petrochemical Integrated Development (RAPID) project.

The contract is expected to be completed within 16 months and would include works to install pipes, fittings, pre-fabricated pipe spools, valves and in-line instrument valves for Petronas' Rapid Project Package 4 Refinery & Crackers Sdn Bhd. (The Edge Daily)

Damansara Realty Bhd has proposed a Redeemable Convertible Notes issue to raise up to RM150.0 mln for working capital purposes and to fund its property development business.

The notes will be issued in four tranches, with a principal amount of RM20.0 mln for the first tranche, RM30.0 mln for the second tranche and RM50.0 mln each for the third and fourth tranches.

The notes are also convertible at the option of the holders into new shares in Damansara Realty of 50.0 sen each. (The Star Online)

PanPages Bhd is planning a joint-venture with an Indonesian firm to accelerate its penetration in Indonesia's information technology sector. To this end, the company inked a Memorandum of Understanding (MoU) with PT Anugerah Tri Lestari yesterday, which will see the latter take up a 60.0% stake in its Indonesia subsidiary, PT PanPages.

The deal is for the purpose of developing a digital ecosystem for Indonesia's small and medium enterprises to develop their online presence and utilise the tools of internet technology. (The Edge Daily)

Harn Len Corp Bhd has been awarded a seven-year management agreement (MA) from Advance Pinnacle Sdn Bhd to manage, harvest and maintain oil palms in Serian, Sarawak on 2nd June, 2016. The land size to be managed measures approximately 2,369 ac.

Under the agreement, Harn Len Management will be entitled to 50.0% of the operating profits generated from the business activity during the term. Should there be no operating profits gained during the term of this agreement, each party will bear 50.0% of the loss suffered.

In a study conducted by Tropicrop Agriculture Services Sdn Bhd, the operating profit forecast for the management agreement is approximately RM15.0 mln, assuming fresh fruit bunches are priced at an average of RM440.0 per metric tonne. (The Edge Daily)

Sona Petroleum Bhd has received letters from Santos Offshore Pty Ltd and Quadrant Northwest Pty Ltd to terminate the US$25.0 mln (about RM104.0 mln) sale and purchase agreement (SPA) for the Stag oilfield assets on 2nd June, 2016, with immediate effect. (The Star Online)

Source: M+ Online Research - 3 June 2016