In-line with the negative sentiment which had blanketed the regional stockmarkets, the FBM KLCI (-0.3%) lingered in the red territory for the entire session, dragged down by selling pressure on the banking heavyweights and quick-profit taking activities amongst the lower-liners.

Market breath was negative as decliners overpowered gainers on a ratio of 491-to- 277 stocks. Traded volume, however, recovered 7.6% to 1.92 bln shares, on the back of bargain hunting activities for undervalued blue chip counters.

Banking-heavyweights which led the fall on the Main Board were CIMB Bank (-9.0 sen) and Hong Leong Financial Group (- 8.0 sen), while RHB Bank shed 15.0 sen due to the potential recognition of an impairment loss from its exposure to Singapore-based oilfield services firm, Swiber Holdings. Other Main Board decliners include MISC (-9.0 sen) and Westports Holdings (-7.0 sen). Notable losers on the broader market include Panasonic Manufacturing (-RM1.34), Lay Hong (-20.0 sen), AEON Credit Service (- 18.0 sen), Southern Acids (-18.0 sen) and Versatile Creative (-17.0 sen).

On the positive side, consumer-related counters continued to gain momentum as Fraser & Neave and Dutch Lady rose 44.0 sen and 36.0 sen respectively. Meanwhile, other broader market gainers include United Plantations (+46.0 sen), George Kent (+18.0 sen) and Bursa Malaysia (+17.0 sen). BAT extended its consecutive gains for a third-day to close 56.0 sen higher, while, other blue chip leaders include Public Bank (+12.0 sen), Hong Leong Bank (+4.0 sen), AmBank (+3.0 sen) and Tenaga Nasional (+2.0 sen).

The Japanese stockmarket traded mostly in the negative zone yesterday, ahead of the Cabinet meeting which will see a more detailed fiscal plan presented. The Nikkei was down 1.5%, dragged by banking and energy shares as crude oil prices edge back to the US$40.0 per barrel level amid the ongoing oil supply glut. Trading activities in Hong Kong, meanwhile, was halted due to tropical storm Nida. The Shanghai Composite Index recovered from a choppy session to close 0.6%, higher, while ASEAN indices closed mostly in the red.

Taking cue from the negative global sentiment, U.S. stockmarkets fell as well, despite paring off earlier losses. The Dow finished 0.5% lower, marking its seventh straight sessions of losses, dragged by heavyweights like Pfizer (-2.5%), Apple (- 1.5%) and Goldman Sachs Group (-1.3%). Meanwhile, on the broader market, the S&P 500 (-0.6%) was in the red with nine out of ten key sectors falling, with the exception of energy stocks, which rallied after the recent sell down. The Nasdaq also shed 0.9% to close near the 5100 points psychological support level.

Key European indices ended on the negative side for the second straight day as banking shares took a hit after U.K.’s Financial Conduct Authority proposed an extended deadline for the Payment Protection Insurance (PPI) compensation claims. Industrials and consumerdiscretionary stocks dragged the FTSE (- 0.7%) lower ahead of the Bank of England’s meeting later this week, while the CAC and DAX dived 1.8% each as persisting low crude oil prices and worries on the financial health of the bankingsector fuelled selling pressure.

THE DAY AHEAD

We see further near term weakness on Bursa Malaysia stocks as positive leads remain few and far in between. At the same time, the spate of quarterly results reported thus far has been less-thanstellar to provide cues for investors to follow. Overseas stockmarkets are also stuttering along with oil prices that have reached bear market territory and the low prices would continue to dampen the share price performance of local oil and gas stocks over the near term.

Although the FBM KLCI managed to hold above the 1,660 level at the close yesterday, the sustained near-term weakness may send the key index back to the 1,650 support level once again. The key resistance, meanwhile, remains at the 1,680 level.

We also expect the mixed-to-lower market environment to persist among the lower liners and broader market shares as retail investors continue to lock-in their shortterm profits, while bargain hunting activities are expected to be limited amid the cautious market environment.

COMPANY UPDATE

Hartalega Holdings Bhd’s 1QFY17 net profit fell 10.4% Y.o.Y to RM56.2 mln due to fluctuations in exchange rates and a rise in operational cost from the increase in natural gas prices, maintenance and staff costs. Revenue for the quarter, however, added 25.4% Y.o.Y to RM401.8 mln.

The reported revenue came within our expectations, accounting to 24.5% of our full year estimated revenue of RM1.64 bln. The reported earnings, however, came below our expectations, accounting to 19.6% of our previous full year estimated net profit of RM287.0 mln.

Comments

Following the weaker-than-expected earnings, we trimmed our earnings estimates for FY17 and FY18 by 6.3% and 7.3% to RM269.0 mln and RM299.8 mln respectively to reflect the general decline in ASPs amid the heightened price competition and volatile exchange rate. Given the recent mild recovery in its share price, we think that the stock offers limited upside and we reiterate our HOLD recommendation, but with a lower target price of RM4.10 (from RM4.25).

Our target price remains based on a 30% premium to its peer’s average of 19.2x (from 20.5x) on its revised FY17 EPS of 16.4 sen. We believe its premium valuation is premised on: (i) Hartalega’s position as the global market leader in the ever-growing nitrile glove industry, (ii) superior operational efficiency in terms of production speed and number of workers per glove output, and (iii) solid fundamentals where it commands the highest net profit margin vs. its peers.

COMPANY BRIEFS

O&C Resources Bhd's (OCR) 70.0% subsidiary, Kita Mampan Sdn Bhd has secured a RM101.1 mln contract to build affordable housing units in Alor Gajah, Melaka under the PR1MA programme. The PR1MA project comprises 554 residential units on five apartment blocks of 11 storey each and one apartment block of 12 storeys. The duration for the contract is over three years.(The Star Online)

Fraser & Neave Holdings Bhd’s (F&N) 3QFY16 net profit grew 12.8% Y.o.Y to RM93.6 mln on strong contributions from its business in Thailand and a better product portfolio mix. Revenue for the period gained 1.8% Y.o.Y to RM1.10 bln.

For 9MFY16, cumulative net profit rose 50.3% Y.o.Y to RM335.8 mln. Revenue for the period added 3.1% Y.o.Y to RM3.15 bln. (The Star Online)

AirAsia X Bhd’s (AAX) number of passengers carried increased 27.0% Y.o.Y to 1.0 mln in 2Q2016, due to increases in demand across all regions following the ongoing turnaround plan initiated in 2015. Meanwhile, the passenger load factor (PLF) improved 7.0% Y.o.Y to 75.0%. The AirAsia X Group’s total fleet size amounted to 31 Airbus A330 aircrafts as at 2Q2016. (Bernama)

MRCB-QUILL REIT’s (MQREIT) 2Q2016 net property income (NPI) grew 5.7% Y.o.Y to RM25.7 mln, driven by higher income from Platinum Sentral and selected properties on positive rental reversions, as well as lower property operating expenses. Revenue for the quarter gained 1.2% Y.o.Y to RM32.6 mln.

For 1H2016, cumulative NPI climbed 34.6% Y.o.Y to RM51.2 mln. Revenue for the period rose 28.4% Y.o.Y to RM65.2 mln. A distribution per unit (DPU) of 4.23 sen, payable on 8th September 2016, was declared.(The Edge Daily)

KPJ Healthcare Bhd’s (KPJ) unit is exploring a tie-up with two Japanese firms, Sojitz Corp and Capital Medica Co Ltd, to develop and operate an oncology centre at Rumah Sakit Medika Bumi Serpong Damai in Indonesia at an estimated cost of US$12.0 mln (RM48.4 mln).

Its wholly-owned subsidiary, Kumpulan Perubatan (Johor) Sdn Bhd had inked a Memorandum of Understanding (MoU) with the two firms on the possible tripartite collaboration at the 12th World Islamic Economic Forum in Jakarta, Indonesia, on 1st August 2016. (The Edge Daily)

Petrol One Resources Bhd, a bunkering and floating storage service provider listed under Practice Note 17, is interested to buy at least 25.0% stake in an oil and gas (O&G) terminal at West Port, Port Klang. Its wholly-owned subsidiary, Petrol One Holdings Sdn Bhd, has entered into a Memorandum of Understanding (MoU) with WEBS Oil Hub Sdn Bhd, in relation to the proposed acquisition.

WEBS Oil wholly owns West Port Bunkering Services Sdn Bhd, which is the asset owner of the said O&G terminal. The terminal has 10 units of storage tanks, with total designed capacity of 220,598 cu.m. (The Edge Daily)

Press Metal Bhd has received total insurance claims of RM115.0 mln following the 17th May 2015 fire that damaged a few smelting pots and temporarily ceased operations to enable clean-up and repair works.

It received the offer for the final insurance compensation payment of RM45.0 mln from insurer MSIG Insurance (Malaysia) Bhd on 1st August 2016. This follows its 5th April 2016 announcement when it received an interim claim of RM70.0 mln as compensation for the damages suffered. (The Edge Daily)

Source: M+ Online Research - 3 Aug 2016