Although the FBM KLCI traded in the negative territory throughout the entire trading session yesterday, the key index managed to recover most of its intraday losses on mild bargain hunting activities before closing just 0.1% lower. The lower liners – FBM Small Cap (+0.5%), FbM Fledgling (+0.2%) and FBM Ace (+0.1%), however, all ended higher while the broader market ended mixed.

Market breadth remained positive as gainers outstripped losers on a ratio of 435-to-366 stocks. Traded volumes added 2.3% to 1.92 bln shares on rotational play amongst the lower liners.

BAT (-50.0 sen) topped the decliners list on the big board, followed by PPB Group (-34.0 sen), KLK (-14.0 sen) and Petronas Dagangan (-10.0 sen). Maxis fell 9.0 sen despite reporting a strong set of quarterly earnings. Notable losers on the broader market were TimedotCom (-20.0 sen), Quality Concrete (-11.0 sen), Advanced Packaging (-10.0 sen), Analabs (-10.0 sen) and Microlink Solutions (-11.0 sen).

Meanwhile, consumer products stocks like Panasonic (+60.0 sen), Heineken (+50.0 sen) and MSM (+20.0 sen) topped the broader market advancers list while Batu Kawan gained 18.0 sen. George Kent jumped 5.0 sen after announcing a 1-for-4 bonus shares issue. Key winners on the big board include Hong Leong Financial Group (+46.0 sen), Genting (+13.0 sen), Petronas Chemicals (+13.0 sen), IHH (+5.0 sen) and Hong Leong Bank (+4.0 sen).

Asian benchmark indices ended mostly lower as the Nikkei (-0.2%) snapped its streak of sixth straight winning days as financials and export-related stocks fell. The Shanghai Composite ended 0.3% lower as financial stocks retreated, but the Hang Seng Index gained 1.0% to close at a fresh year-to-date high. ASEAN stockmarkets, meanwhile, ended mixed.

U.S. stockmarkets advanced overnight as the Dow (+0.2%) registered its ninth straight winning day – the longest since 2013 to close at another record high. On the broader market, the S&P (+0.4%) also closed at a record level as corporate earnings from Microsoft (+5.3%) and Morgan Stanley (+2.1%) topped analysts’ forecast, while the Nasdaq jumped 1.1% higher.

Earlier, European benchmark indices also closed higher ahead of the European Central Bank meeting as the FTSE gained 0.5% after the U.K unemployment rate fell to 4.9% in May – the lowest in 11 years. Both the CAC and DAX gained 1.2% and 1.6% respectively as the latter was buoyed by stronger-than-expected corporate earnings from Volkswagen AG (+3.2%).

THE DAY AHEAD

There remains no change to our near term view with the FBM KLCI likely to struggle to break-out of the 1,670 level convincingly over the near term amid the lack of domestic catalysts as well as continuing quick profit taking activities.

At the same time, the market could remain cautious as fresh 1MDB issues have emerge and this could keep more market players on the sidelines.

Therefore, we see the FBM KLCI remaining mostly rangebound over the near term within the 1,660-1680 levels despite the more positive overseas stockmarket performances overnight.

Meanwhile, we think the continuing speculative interest could see retail participation among the lower liner stocks remaining positive, but the hit and run tactics will likely keep a lid on their upsides, in our view.

MACRO BRIEF

Malaysia’s inflation rate, as measured by consumer price index, rose 1.6% Y.o.Y to 114.8 in June - coming below economists’ estimates of 1.8% Y.o.Y rise.

The increase was due to higher prices for food & beverages (+4.2% Y.o.Y) as well as alcoholic and tobacco products (+21.9% Y.o.Y), but the increase were slightly offset by lower transportation costs (-8.5% Y.o.Y).

On a monthly basis, the CPI for June 2016 increased 0.2% M.o.M, while the CPI for January to June 2016 rose 2.7% Y.o.Y. (The Star Online)

COMPANY UPDATE

Petronas Chemicals Group Bhd (PETCHEM) has appointed Barakah Offshore Petroleum Bhd as a panel contractor for construction works to be performed at Petchem subsidiaries.

The said project involves assistance to the Project Engineering Centralised Services or individual plant owner in undertaking Procurement, Construction, Installation and Commissioning work for plant modification and improvement projects throughout Petchem’s operating units in West Malaysia/Peninsular Malaysia.

The contract has a tenure of two years with an option for one year extension. However the total value of the contract was not disclosed as it will depend on the actual work orders to be issued by Petchem from time to time.

COMMENTS

Although the total value of the contract was not disclosed, this would bode well with the expected improvement to Barakah’s 2016 financials as the management has begun to build more confidence over the potential future job securements amid the improvement in crude oil prices.

Our orderbook replenishment rate remains unchanged at RM200.0 mln – RM300.0 mln for the remainder of 2016 and we believe Barakah is among the top choices to undertake any O&G pipeline commissioning related services, given the company’s niche expertise in its bread and butter business (pipeline commissioning services).

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 as the company is well supported by its unbilled orderbook of RM1.60 bln (with earnings visibility up until 2017-2018). 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 BRIEF

Maxis Bhd’s 2Q2016 net profit rose 10.7% Y.o.Y from RM 441.0 mln in 2Q2015 to RM 488.0 mln, mainly due to lower network operation costs and income tax charges. Revenue, however, was stagnant at RM2.10 bln, as opposed to RM 2.11 bln last year.

For the cumulative 1H2016, Maxis’ net profit expanded 18.2% Y.o.Y to RM1.01 bln, up from RM851.0 mln in the previous corresponding period, despite lower revenue which stood at RM4.24 bln from RM4.26 bln in 1H2015.

The stronger earnings were on the back of lower network operation costs and other expenses. The group has also proposed a second interim dividend of 5.0 sen per share.

Further, Maxis have earmarked RM1.3 bln worth of capital expenditure (Capex) for next year. (The Star Online)

RHB Banking Group will reduce its base rate (BR), base lending rate (BLR) and base financing rate (BFR) in conjunction with Bank Negara’s recent decision to reduce the overnight policy rate (OPR) to 3.0%.

With effect from 22th July 2016, RHB Bank and RHB Islamic Bank will drop its BR from 3.90% to 3.80% per year, and will also reduce the BLR and BFR from 6.85% to 6.75% per annum. (The Star Online)

Borneo Aqua Harvest Bhd was slapped with an Unusual Market Activity (UMA) query by Bursa Malaysia following the 40.0% surge in its share price over the past week. In reply, the group said that it was unaware of any reasons that could have caused the share price hike. (The Star Online)

DBE Gurney Resources Bhd has signed a joint-venture (JV) agreement with Distinct Legacy Sdn Bhd and Tengku Faizwa Tengku Razif, to supply chickens to HARUMi retail outlets.

DBE and Distinct Legacy would each hold 40.0% in the JV entity, while Tengku Faizwa would hold the remaining 20.0%.

The group and its business partners will jointly form an entrepreneur development programme, which will involve the establishment of HARUMi retail outlets through licence arrangements. The JV business will allow DBE to expand its retailing business through HARUMi products and is expected to achieve its target of 1,000 kiosks across Malaysia in the next twelve months.

Presently, DBE have established more than 100 kiosks across Malaysia and is looking to achieve its target of 500 kiosks by end of this year through this JV business. (The Star Online)

WZ Satu Bhd has clinched a mechanical erection subcontract package worth RM32.7 mln for the Refinery and Petrochemical Integrated Development (Rapid) project at Pengerang, Johor.

The 18-month contract awarded by Petrofac E&C Sdn Bhd requires WZ Satu to erect mechanical equipment (static and rotating equipment) for Package 4 of the Rapid project and is expected to contribute positively to WZ Satu’ FY17 and FY18 earnings. (The Edge Daily)

Hua Yang Bhd registered a 20.0% Y.o.Y drop in its 1QFY17 net profit to RM23.9 mln, compared to RM29.9 mln last year - mainly due to weaker sales performance. Meanwhile, revenue for the quarter slid 10.0% Y.o.Y to RM127.9 mln, from RM142.6 mln in 1QFY16.

The group has also announced a one-for-three bonus issue, which will see an issue of 88.0 mln bonus shares on an entitlement date to be determined and announced later. The exercise is expected to be completed in the 2H2016 and will be capitalised from the company’s reserves.

As at 30th June, 2016, Hua Yang’s total unbilled sales stood at RM410.1 mln. (The Edge Daily)

I-Bhd's 2Q2016 net profit jumped 72.3% Y.o.Y to RM14.7 mln, from RM8.5 mln in the previous corresponding period, on the back of stronger property sales, while, revenue surged 64.4% Y.o.Y to RM86.7 mln from RM52.7 mln.

For 1H2016, net profit was 60.2% Y.o.Y higher at RM30.0 mln in comparison to RM18.8 mln in the preceding year, mainly due to strong double-digit growth in its top line. Revenue also increased 30.5% Y.o.Y to RM167.1 mln, from RM128.1 mln a year ago. (The Edge Daily)

Source: M+ Online Research - 21 Jul 2016