The FBMKLCI started on a solid footing upon the opening bell and finished 0.7% higher for the day on the back of the Federal Reserve’s dovish move to keep interest rates unchanged that renewed buying interest in selected heavyweights. The lower liners recovered from its decline last Friday as the FBM ACE (+1.3%) snapped its two straight trading sessions of losses to close in the green. In-line with the overall favourable index linked stocks, the broader market also finished mostly higher with the exception of the Properties sector (-0.1%).

Market breath turned positive as winners outrun losers on a ratio of 426-to-333 stocks. Traded volume, however, lost 6.3% to 1.78 bln shares, mainly due to the lack of fresh catalysts and falling crude oil prices.

Key index chart toppers include BAT (+64.0 sen), Public Bank (+18.0 sen) and Sime Darby (+18.0 sen), while CIMB Bank and Genting Malaysia rose 11.0 sen each. Meanwhile, Chin Teck Plantations (+49.0 sen) led the lower liners gainers, followed by Nestle (+40.0 sen), New Hoong Fatt Holdings (+34.0 sen), Fraser & Neave Holdings (+30.0 sen) and KESM Industries (+22.0 sen).

Significant lower liners decliners were Panasonic Manufacturing (-66.0 sen), Dutch Lady (-34.0 sen), Lingkaran Trans Kota Holdings (-16.0 sen), Enra Group (- 15.0 sen) and Sam Engineering & Equipment (-15.0 en). Only four blue chip stocks lost momentum - Hong Leong Financial Group (-14.0 sen) and Petronas Gas (-2.0sen), while MISC and Telekom Malaysia fell 1.0 sen each.

Tracking the positive sentiment from the European and U.S. stockmarket last Friday, key regional benchmark indices closed in the green territory following the Federal Reserve’s decision to keep interest rates unchanged stoked investors’ appetite for more lucrative returns in emerging market stocks. The Nikkei climbed 0.4% as investors look forward to significant stimulus measures from Prime Minister Shinzo Abe. The Shanghai Composite Index, however, retraced 0.9% after China’s manufacturing data showed slower growth in July and news of tighter regulation on Wealth Management Products continued to pressure insurance-related stocks. The Hang Seng Index, meanwhile, bucked the general trend to close 1.2% higher. ASEAN indices closed broadly higher.

Wall Street was also mostly lower, mainly due to declining crude oil prices and sluggish global economy. The Dow finished 0.2% lower as losses in O&G heavyweights offset gains made by technology-giants such as Apple (+1.8%). On the broader market, the S&P500 pared off its earlier gains to close 0.1% lower even as the Nasdaq advanced 0.4% to close at 5,184.2 points.

European stockmarkets ended down on Monday as investors digested lower-than-expected manufacturing data and worrying results of the European Banking Authority’s (EBA) recent stress tests. The FTSE lost 0.5%, dragged by consumer-discretionary stocks such as Taylor Wimpey (-4.5%) and Berkeley Group Holdings (-4.0%). On the other hand, Anglo American rose 2.2% after an investment bank upgraded its outlook. Meanwhile, banking stocks pressured the DAX (-0.1%) and CAC (-0.7%) lower following concerns on the sustainability of banks which performed poorly on the EBA stress test, as well as failing crude oil prices.

THE DAY AHEAD

Despite yesterday’s strong gains, we think quick profit taking activities are likely to materialise over the near term amid the overnight weakness of most global markets. This is likely to see local stocks retreating as well, giving an excuse to market players to lock-in their short-term profits. Oil and gas related companies could see renewed weakness amid the lower oil prices.

There should be support at the 1,660 level, followed by the 1,650 level. The key resistance, meanwhile, remains at the 1,680 level.

We also think there could be quick profit taking activities among the lower liners and broader market stocks as retail players would also be quick to lock-in their gains.

COMPANY UPDATE

Coastal Contracts Bhd has signed an Memorandum of Understanding with PT. Jaya Samudra Karunia Internasional (JSK), PT. Jaya Samuda Karunia Gas (JSK Gas) and Yudha Kurniawan Tanos to tap into the growing liquefied natural gas (LNG) supply chain in Indonesia with the purchase of a 49.0% equity stake in T Jaya Samudra Karunia for approximately RM27.0 mln.

The proposed JV is also in line with Coast Contracts’ initiative to further expand its business activities in the LNG downstream sector. With this acquisition, Coastal Contracts will be able to build a new portfolio of LNG related business together with JSK as the owner of floating LNG regasification unit (FRU) and floating storage unit (FSU).

Comments

Despite the soft crude oil and LNG prices, the aforementioned JV venture bodes well with the company's future earnings flow and diversifying its reliance on the OSV subsector, which have taken a big hit with the lower oil prices. However, there is no indicative value in terms of the potential earnings accretion to Coastal owing to the confidentiality clause embedded in the MoU.

Hence, we maintain our HOLD recommendation with a target price of RM1.65 as Coastal’s near-to-short term earnings visibility is still well underpinned by its sizeable and enviable cumulative orderbook size of approximately RM2.20 bln (RM1.00 bln for its OSV business segment, while the JU GCSU/rig business segment has an orderbook value of RM1.20 bln - with approximately two years of earnings visibility).

Our target price is arrived by ascribing a target PER of 8.0x, to our unchanged FY18 EPS estimate of 20.4 sen per share. However, we may revise our target price upon receiving more clarity and disclosure on the details of the JV after its earnings announcement in August, followed by an analyst briefing after that.

COMPANY BRIEFS

Media Chinese International Ltd (MCIL), through indirect unit Comwell Investment Ltd, has entered into a conditional agreement to sell its 73.0% stake in Hong Kong-listed One Media Group Ltd (KG) to a Chinese state-owned company, Qingdao West Coast Holdings (International) Ltd, for HK$498.1 mln(RM257.9 mln) in cash.

The consideration represented a premium of about 21.5%, or HK$88.3 mln (RM45.7 mln) to the market value of the shares on the last trading day. It estimated that it would recognise a gain of about HK$363.3 mln (RM188.4 mln), being the price less the net carrying value attributable to the shares as at 31st March 2016 and after deducting the estimated expenses and considering relevant accounting adjustments. The proposed share disposal is expected to be completed by 4Q2016. (The Star Online)

VS Industry Bhd has secured a RM100.0 mln contract to manufacture water filters for NEP Holdings (M) Bhd, a company in which it is buying a 20.0% stake for RM60.0 mln cash. The contract to manufacture the Diamond branded water filtration system is for 12 months. Diamond is the market leader in Malaysia with about 30% of market share.

The group, which manufactures vacuum cleaners for Dyson, has sufficient manufacturing capacity in Malaysia, Indonesia and China to support NEP’s expansion plan into the new markets. As for now, VS Industry does not have a plan to increase its stake in NEP and would be focusing on the group partnership with NEP. (The Star Online)

Scomi Engineering Bhd's (SEB) indirect unit will sell a parcel of industrial land with office buildings and factories in Serendah, Selangor to Axis Real Estate Investment Trust (REIT) and lease it back from the trust for a total of RM42.0 mln. The land houses a three-storey office building attached to a single-storey factory and a four-storey office building with a single-storey factory.

The leaseback will be for 15 years, with an option to renew for another five years. The original cost of the properties was some RM45.0 mln but the net book value as at 31st March 2016 is about RM39.0 mln. The sale will result in a one-off gain of approximately RM2.0 mln, which could be utilised for working capital requirements. (The Edge Daily)

UMW Holdings Bhd’s (UMW) wholly-owned subsidiary, UTech Americas, Inc. (UTech Americas) has partnered with United States Spark Labs International, Inc. to participate in technology co-working business in North America.

The initial contribution to the capital of the joint venture entity will be US$2.0 mln (RM8.1 mln), where it is to be contributed by the parties on a 50:50 basis. A JV entity, U-Spark LLC (U-Spark), has been established as a limited liability company in the State of Delaware. (The Edge Daily)

Bina Puri Holdings Bhd has bagged an RM80.0 mln contract from Arus Sutera Sdn Bhd to provide project management consultancy services for 440 units of walk-up flats under the People's Housing Project in Pitas, Sabah. Construction works will be completed within 42 months. (The Edge Daily)

Malaysia Marine and Heavy Engineering Holdings Bhd’s (MHB) 2Q2016 net loss stood at RM2.6 mln, vs. a net profit of RM18.0 mln in in the previous corresponding quarter, dragged down by its heavy engineering segment and shrinking profits from the marine segment. Revenue for the quarter fell 48.9% Y.o.Y to RM297.4 mln.

For 1H2016, cumulative net loss stood at RM10.1 mln, vs. a net profit of RM54.1 mln in the previous corresponding period. Revenue for the period sank 57.4% Y.o.Y to RM554.2 mln. (The Edge Daily)

United Plantations Bhd’s 2Q2016 net profit rose 3.8% Y.o.Y to RM72.4 mln, on lower tax expenses and higher topline growth. Revenue for the quarter gained 8.6% Y.o.Y to RM277.7 mln.

For 1H2016, cumulative net profit rose marginally higher by 1.0% Y.o.Y to RM132.1 mln. Revenue for the period climbed 9.7% Y.o.Y to RM537.3 mln. (The Edge Daily)

Hektar Real Estate Investment Trust's (Hektar REIT's) 2Q2016 net property income (NPI) fell 3.9% Y.o.Y to RM18.9 mln on higher property operating expenses. Revenue for the quarter was flat at RM30.9 mln.

For 1H2016, cumulative NPI fell 1.9% Y.o.Y to RM37.6 mln. Revenue for the period, however, rose marginally by 0.6% Y.o.Y to RM62.5 mln. An income distribution of 2.6 sen per unit, payable on 2nd September 2016 was declared. (The Edge Daily)

Cuscapi Bhd is supplying self-ordering tablets to a China restaurant chain, for which it expects to receive 250.0 mln yuan (RM151.7 mln) of service fees over the next six years.

Cuscapi’s wholly-owned subsidiary, Cuscapi Interactive Technology (China) Pty Ltd, has entered into an agreement with Shanghai Lead Food and Restaurant Management Co Ltd (SLFRMC) on 1st August 2016 to exclusively deploy and manage the REV self-ordering tablets to SLFRMC. Cuscapi expects to deploy up to 25,000 REV self-ordering tablets for SLFRMC’s existing Ajisen restaurants in China. (The Edge Daily)

Source: M+ Online Research - 2 Aug 2016