Following the US stockmarkets weak closing on Monday, the FBM KLCI continues to slide downwards, closing 0.2% lower on the back of selling pressure on selective key-index heavyweights and weaker crude oil prices. The lower liners sunk into the negative zone, while, the majority of the broader market counters fell with the exception of the Industrial Products (+0.1%) and Construction (+0.4%) sub-indices.

Market breadth was negative as decliners exceed gainers on a ratio of 486-to-278 stocks. Traded volumes fell slightly by 1.1% to 1.47 bln shares as investors chose to remain on the sidelines amid uncertainties in the global direction.

Key losers on the Main Board include UMW (-26.0 sen) Maybank (-16.0 sen), Genting (-12.0 sen), Genting (-14.0 sen), MISC (-12.0sen) and KLCC (-7.0 sen). Meanwhile, lower liners decliners were led by Bintulu Port Holdings (-38.0 sen), Petron Malaysia Refining and Marketing (- 24.0 sen), Scientex (-22.0 sen), Allianz (- 20.0 sen) and Apollo Food (-9.0sen).

Airport Holdings (+19.0 sen), Heineken Malaysia (+16.0 sen), Goldis (+15.0 sen), Pestech (+15.0 sen) and SAM Engineering & Equipment (+13.0 sen) led the broader market higher. Meanwhile, significant FBM KLCI advancers were the Oil and Gas players like Petronas Dagangan and Petronas Gas which rose 16.0sen each, trailed by Public Bank (+14.0sen), Hong Leong Financial Group (+12.0sen) and PPB (+12.0sen).

Asian key benchmark indices were mostly beaten down, fuelled by worries on the U.K. referendum. The Nikkei lost 1.0% after a choppy trading session. Meanwhile, Chinese stockmarkets was volatile as investors speculate on MSCI’s decision to include China’s A-shares in its indexes. The Shanghai Composite index was up 0.3%, despite the fall in the Hang Seng by 0.6%. The majority of ASEAN stockmarkets also retreated.

US stockmarkets locked-in its fourth consecutive losses overnight as selling pressure is seen amid the blue chips. The Dow lost 0.3%, while, the S&P 500 and the Nasdaq shed 0.2% and 0.1% respectively.

European key benchmark indices slumped as investors await major global decisions, such as the U.K. referendum and monetary policies of Japan. The FTSE contracted 2.0%, on the back of losses suffered by banks alongside the slide in government bank bonds yields. Meanwhile, the DAX lost 1.4% and the CAC fell 2.3%.

THE DAY AHEAD

Despite the smaller losses yesterday, there remains no change to the near term outlook of the Malaysian stockmarket and market conditions remaining frail amid the heightened concerns over the Brexit referendum next week and the FOMC meeting that starts today.

This means that the downside risk is still prevalent and the key index is likely to head lower over the near term. On the downside, the 1,620 level remains the immediate support level, while the 1,600 points level will serve as the major support. However, there appears to be some bouts of mild bargain hunting among the key heavyweights and we think this could continue and the mild support would limit the downside risk, in our view.

Interest among the broader market and lower liner shares are also expected to stay mostly tepid amid the lack of fresh catalysts. Therefore, this will continue to result in market breadth remaining on the low side as most investors remain on the sidelines.

COMPANY NEWS

Barakah Offshore Petroleum Bhdd has received the Letter of Award from Murphy Sarawak Oil Co Ltd, Murphy Sabah Oil Co Ltd and Murphy Peninsular Malaysia Oil Co Ltd for an umbrella contract for the provisioning of welding services for drilling and subsea program up until 2018.

The scope entails providing welding services, which includes manpower, equipment and consumables on work order basis for Murphy’s offshore drilling and subsea programs throughout the duration of the contract.

The total value of the contract, however, was not disclosed. Nonetheless, this is expected to contribute positively towards the earnings and net assets per share of Barakah for the duration of the contract.

Comments

The aforementioned contract securement was well within our expectations as the work orders are consistent throughout the period of 2016. This has lifted the confidence of the management team and they expect higher future job securements which would have positive spillover effects to the earnings visibility of the company.

Going forward, we believe its earnings will play catch up from 2Q2016 onwards as it ramp-up its work processes, coupled with the internal cost control measures that were undertaken in 2015 to bolster the profitability margins of Barakah from 2Q2016 onwards, which is similar to the management’s guidance.

However, the potential securement of future projects would carry lesser profitability margins (vs. profitability margins in 2014), which may offset the aforementioned cost savings due to the stiffer pricing and heightened cost competition.

Still, 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 also well supported by its unbilled orderbook of RM1.60 bln (with earnings visibility up until 2017-2018), while 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

RHB Bank Bhd is demanding RM118.2 mln from Malaysia Pacific Corp Bhd (MPCorp) in debt payment, along with interests and costs granted by the High Court on 11th April 2016. RHB Bank is demanding repayments on revolving credit facilities of RM43.6 mln, RM10.6 mln for overdraft facilities I and RM63.9 mln for overdraft facilities II.

In addition, the bank seeks interest to be calculated at the rate of 3.5% p.a. above base lending rate on a monthly rest basis from 9th June 2016, until the date of full settlement for the two overdraft facilities as well as interest on the sum of principal RM25.7 mln at the rate of 3.0% p.a. above cost of fund from 9th June 2016 until the date of full settlement for the revolving credit facilities.

MPCorp, which saw the resignation of its CFO and Group Financial Controller in the last three months, would seek legal advice on the above and would make further announcement in due course. (The Star Online)

Water Beaute World Bhd has ceased to be the biggest shareholder of Raya International Bhd, a water filter distributor whose shareholders recently approved its diversification into oil bunkering and oil-related products trading. Raya International has stopped manufacturing water and air filter products since early 2014 as they were not competitive against cheaper and imported products, acting only as a distributor of water filter components sinceWater Beaute had disposed of 18.3 mln shares, representing about 12.7% of the company’s paid-up capital on 10th June 2016. Based on the closing price of 23.0 sen per share, the shares sold were worth RM4.2 mln.

Separately, Raya International plans to issue up to 20.5 mln shares (12.5% of its paid-up capital) to approved Bumiputra investors. Proceeds will be used mainly for the expansion into providing bunkering services for marine fuel, petroleum and petroleum-based products. (The Star Online)

Felda Global Ventures Holdings Bhd (FGV) has scrapped its plan to produce biodegradable plastics from palm oil biomass waste in Malaysia as parties involved are unable to achieve mutual agreement on the Memorandum of Understanding (MoU) inked on 14th December 2015. The signing of the MoU was between Felda Global Ventures Downstream Sdn Bhd, US based-Newlight Technologies LLC and Innogas Technologies Sdn Bhd to collaborate in a project to produce biodegradable plastics from palm oil biomass waste in Malaysia. (The Edge Daily)

Highway concessionaire Kumpulan Europlus Bhd saw two of its substantial shareholders, MWE Holdings Bhd and IJM Corp Bhd raise their collective shareholding to 51.7%.

MWE had acquired 6.0 mln shares or a 0.6% stake on 14th June 2016, bringing its total shareholding to 256.6 mln shares or 25.6%. Meanwhile, IJM Corp has raised its stake to 26.2% after acquiring 1.3 mln shares or a 0.1% stake in the company. (The Edge Daily)

Sarawak Consolidated Industries Bhd saw 11.0 mln shares, representing a 14.6% stake in the company crossed off market on 14th June 2016. The shares were moved in a block for a total value of RM7.0 mln or 63.5 sen per share. The transaction price is 6.5 sen, or 9.3% lower, compared with its open market price of 70.0 sen a share. However, it is not known as to whom the parties involved in the trades were. (The Edge Daily)

Source: M+ Online Research - 15 June 2016