The FBM KLCI (+0.1%) staged a mild rebound yesterday, underpinned by gains in selective banking heavyweights which offset the sharp decline in BAT (-11.1%). The lower liners – FBM Small Cap (+0.5%), FBM Fledgling (+0.4%) and FBM Ace (+0.7%) all closed higher, while the Industrial Products (-0.7%), Consumer Products (-1.2%) and Technology (-0.7%) sectors underperformed the positive broader market.

Market breadth turned positive as gainers outnumbered losers on a ratio of 430-to- 343 stocks. Traded volumes rose 25.5% to 1.75 bln shares on renewed buying interest amongst the lower liners.

Leading the gainers on the FBM KLCI was Petronas Dagangan (+44.0 sen), followed by banking heavyweights like CIMB (+11.0 sen), Hong Leong Bank (+10.0 sen) and Hong Public Bank (+10.0 sen), while Genting added 19.0 sen. Notable gainers on the broader market were Panasonic (+RM1.38), Aeon Credit (+58.0 sen), KESM Industries (+29.0 sen), United Plantations (+28.0 sen) and Excel Force (+19.0 sen).

Amongst the biggest decliners on the broader market include Nestle (-40.0 sen), Carlsberg (-20.0 sen), Tasek Corporation (-16.0 sen) and Fraser & Neave (-12.0 sen). Globetronics dipped 20.0 sen after reporting a disappointing set of quarterly earnings. BAT (-RM6.20) plunged after reporting a weak set of quarterly earnings, while other key index losers were Axiata (- 8.0 sen), Maybank (-6.0 sen), Westports (- 3.0 sen) and Sime Darby (-2.0 sen).

Japanese stockmarkets cheered on the larger-than-expected 28 trl Japanese Yen (US$265.0 bln) fiscal stimulus plan as the Nikkei jumped 1.7%. The Hang Seng Index gained 0.4%, but the Shanghai Composite (-1.9%) tripped below the 3,000 psychological level on possible curbs on wealth management products to limit fund flows into the equity market. ASEAN stockmarkets, meanwhile, ended mostly higher.

Wall Street closed mostly lower as the Dow fell 0.01% overnight after the US Federal Reserve signals for a September rate hike as the near term economic risk has diminished. On the broader market, the S&P (-0.1%) was dragged down by the weakness in consumer staples sector (-3.3%), but the NASDAQ gained 0.6% on stronger-than-expected Apple earnings.

Earlier, European stockmarkets – the FTSE (+0.4%), CAC (+1.2%) and DAX (+0.7%), all extended their gains after the the U.K. GDP grew 0.6% Q.o.Q – above economists’ estimates of a 0.4% growth. Notable advancers include Louis Vuitton (+7.7%) and Peugeot (+8.7%) after they reported strong quarterly earnings.

THE DAY AHEAD

We expect the FBM KLCI to continue drifting within a tight trading range amid the continuing lack of sustainable and positive catalysts. However, there could be some downside bias, particularly on Petronas-related companies after its parent company’s rating was cut by Fitch Ratings.

We also think that quick profit taking activities could permeate to other stocks, particularly among the lower liners and broader market shares that could further limit the market’s movement over the near term. Therefore, we expect the key index to remain within the 1,660-1670 levels for now.

COMPANY UPDATE

Barakah Offshore Petroleum Bhd was awarded with a Transportation and Installation contract of ten Riser Guards to seven platforms in SKO Field, Sarawak, worth RM38.2 mln. The tenure of the project is only for four months ending in October 2016.

Comments

The aforementioned job scope is well within our estimated orderbook replenishment rate of RM200.0 mln – RM300.0 mln for 2016. Concurrently, Barakah has secured a definitive value of RM122.3 mln worth of new contracts YTD, while the company has also secured projects from both Petronas Chemicals and Murphy Oil projects (indicative value however was not disclosed as total value will depend on the actual work orders to be issued and carried out from time to time).

However, the securement of recent projects may carry lesser profitability margins (vs. profitability margins in 2014) due to the stiffer pricing and heightened cost competition. Meanwhile, our orderbook replenishment rate remains unchanged owing to the volatile crude oil prices and market environment coupled with the start of monsoon season which would reduce the likelihood of ample progression in offshore related jobs.

Hence, 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 BRIEF

Syarikat Takaful Malaysia Bhd's 2Q2016 net profit increased 16.9% Y.o.Y to RM45.5 mln, from RM39.0 mln in the previous corresponding period, on the back of higher Wakalah fee income. Quarterly revenue was also 6.6% Y.o.Y higher to RM462.2 mln vs. RM433.53 mln in 2QFY15.

For 1H2016, the group’s net profit expanded 8.2% Y.o.Y to RM92.2 mln from RM85.2 mln a year earlier, buoyed by higher Wakalah fee income, while revenue stood at RM1.09 bln against RM996.0 mln in 1H2015.

Moving forward, Takaful plans to continue its 15.0% cash back for general Takaful products, as a way to reward its customers, as well as establish a strong position as the preferred choice for Takaful insurance. (The Star Online)

Moody's Investors Service has revised Malaysia Airports Holdings Bhd's (MAHB) outlook to 'negative' from 'stable' to reflect the increasing operating challenges faced by the airport operator's unit in Istanbul. Nonetheless, Moody's has affirmed MAHB's A3 issuer rating.

As the owner and operator of the second biggest airport in Instanbul, Turkey, MAHB’S outlook remained bleak, following an expected decline in passenger traffic growth after the failed military coup and the terrorist attacks that occurred this year. (The Star Online)

Cepatwawasan Group Bhd registered a 55.1% Y.o.Y increase in its 2Q2016 net profit to RM5.1 mln, from RM3.3 mln last year, attributed to a 44.0% increase in power sales and lower operating cost. Revenue, however, fell 5.0% Y.o.Y to RM51.3 mln, in comparison to RM54.0 mln in the corresponding quarter a year ago.

For 1H2016, however, net profit shed 29.0% Y.o.Y to RM4.7 mln, from RM6.6 mln a year ago, mainly due to lower oil extraction rate as well as weaker milling margin and lower FFB production. Revenue was also lower by 6.5% Y.o.Y from RM96.4 mln in 1H2015 to RM90.2 mln.

Despite suffering the impact from the El Nino phenomenon earlier this year, the group experienced a steady increase in crop production in 2Q2016, suggesting that the worst of the El Nino impact on yield may be over. (The Edge Daily)

Reliance Pacific Bhd has appointed its largest shareholder, Datuk Md Wira Dani Abdul Daim, as its Executive Director in the travels and tour operator.

Further, its Chief Executive Officer, Datin Irene Tan has tendered her resignation with effect from 30th September, 2016. Datin Irene and Reliance founder, Datuk Gan Eng Kwong sold off 37.3 million shares, which represents a 4.4% indirect stake in the company held via Reliance Holdings Sdn Bhd and through nominees to Mazmur Capital Sdn Bhd. (The Edge Daily)

Dagang NeXchange Bhd’s (DNeX) 465.1 mln rights issue was oversubscribed by 23.0%, reaping a gross profit of RM97.7 mln. Total valid acceptances totaled to 402.2 million rights shares or 86.5%, and total valid excess applications was 168.3 mln rights shares or 36.2%, which made up 570.4 mln shares or 122.6%.

The group added that its special issue of 130.0 mln new shares would also be fully subscribed, raising gross proceeds of RM28.6 mln which will be used to finance the growth of its information technology and energy businesses.

Meanwhile, the RM97.7 mln of the gross proceeds will be mainly used to fund the acquisitions of OGPC Sdn Bhd and OGPC O&G Sdn Bhd

Following the completion of the corporate exercises, DNeX's shareholder base will be enlarged to 1.7 bln shares. Meanwhile, the rights shares and warrants are slated to be listed on Bursa’s Main Board on 3th August 2016. (The Star Online)

Texchem Resources Bhd has slipped into the red in 2Q2016 with a net loss of RM3.5 mln, from a net profit of RM558, 000 in the previous corresponding period, dragged by weaker performance from its food and restaurant business. Revenue for the quarter, however, grew 5.0% Y.o.Y to RM248.5 mln, from RM236.7 mln a year earlier.

Its cumulative 1H2016 net loss of RM5.7 mln was also higher against a net profit of RM5.5 mln in 1H2015 and was contributed by the weaker performance of its food and restaurant division, 1H2016 revenue fell slightly to RM505.3 mln, from RM513.79 mln.

Moving forward, the group thinks its restaurant division will improve following the recovery in domestic consumer demand, albeit offset by slower growth in its industrial and polymer engineering divisions, which will continue to be influenced by global demand. (The Edge Daily)

TAS Offshore Bhd sunk into a net loss of RM19.7 mln in 4Q2016, compared to a 4QFY15 net profit of RM2.3 mln, mainly due to cancellation of shipbuilding jobs and an impairment loss on trade receivables. The group has also recorded a negative turnover of RM6.5 mln, from quarterly revenue of RM73.9 mln in the same period last year.

It also reported a FY16 net loss of RM22.8 mln, from a net profit of RM12.5 mln in FY1 that resulted from a 55.7% Y.o.Y drop in revenue to RM122.3 mln, on top of higher administrative expenses, finance costs and income tax expense.

Despite the underperforming earnings results, the company remains sanguine about its prospects going forward, as the demand for oil in Asian region stabilised amid the development progresses in countries like China and India and in smaller nations like Thailand, Taiwan, Singapore, Malaysia and Indonesia. (The Edge Daily)

Source: M+ Online Research - 28 Jul 2016