The FBM KLCI climbed 0.4% yesterday as the key index lingered in the positive territory for the entire trading session, inline with the positive sentiment on the regional benchmark indices. Concurrently, the lower liners ended higher amid a mostly positive broader market, with the exception of the Plantations sector (-0.3%).

Market breath turned positive as gainers outweigh losers on a ratio of 460-to-326 stocks. Traded volume narrowed slightly by 1.8% to 2.05 bln share as local sentiment remained cautious amid the ongoing earnings reporting season.

Anchoring the advancers on the key index was BAT (+70.0 sen), followed by Hong Leong Financial Group (+32.0 sen), RHB Bank (+16.0 sen), KLCC Property & REITs (+14.0 sen) and Genting Malaysia (+10.0 sen). Notable gainers on the broader market include Lay Hong (+85.0 sen), Hong Leong Industries (+28.0 sen), Mesiniaga (+25.0 sen), SAM Engineering & Equipment (+22.0 sen) and Rapid Synergy (+21.0 sen).

Meanwhile, among the biggest decliners of the day include Fraser & Neave (-84.0 sen), Shangri-La Hotels (-16.0 sen), Apex Healthcare (-15.0 sen), KESM Industries (-10.0 sen) and Aturmaju Resources (-8.0 sen). There were only six decliners on the FBM KLCI – Hong Leong Bank (-8.0 sen), IHH Healthcare (-4.0 sen) and Astro (-2.0 sen), while the other heavyweight losers include Petronas-linked companies - Petronas Gas (-8.0 sen) and Petronas Dagangan (-6.0 sen), on the back of lower crude oil prices.

The Nikkei (+1.1%) snapped its twostraight sessions of losses to close higher, anchored by gains in brokerages and shippers. The Hang Seng rose 0.4%, while the Shanghai Composite Index (+0.1%) reversed its intra-day deficit to end in the green. ASEAN indices, meanwhile, finished mostly higher.

Meanwhile, Wall Street flatlined as investors looked past the BoE’s interest rate reduction and stimulus measures to focus on Friday’s employment data for clues on the strength of the economy. The Dow (-0.02%) wavered between the positive and the negative territory before closing almost unchanged, while the S&P 500 (+0.02%) closed in the green, on the back of gains by raw materials and technology-related companies. The NASDAQ rose 0.1% to close above the 5,100 psychological support level.

European stockmarkets finished higher, following the Bank of England’s decision to cut interest rates for the first time in seven years, in a bid to cushion the aftermath arising from the Brexit decision. The FTSE jumped 1.6%, marking its biggest intra-day gain in a month. Meanwhile, the CAC and the DAX advanced 0.6% each as exporters pushed the indices higher on the back of a weaker Pound.

THE DAY AHEAD

There remains no change in the general market condition with sentiments still on the tentative side as investors are still looking for sustainable leads, both from domestic and foreign sources. The ongoing quarterly results released thus far has been largely tepid and provided few convincing leads for local investors to digest. Until then, we expect the FBM KLCI to stay mostly rangebound as investors will still be on cautious side.

For the near term, however, we think that the market could inch higher amid the continuing bargain hunting on selected stocks, taking cue from the generally positive overseas market environment overnight. This could allow the key index to retest the 1,660 level again, while the 1,650 level still serves as the main near term support.

The lower liners are also seeing renewed buying interest and this will help to improve market breadth, albeit we expect the volatility to continue as retail investors will adopt quick profit taking activities.

COMPANY UPDATE

OCK Group Bhd's 60% owned Vietnam subsidiary is buying the entire equity interest in Southeast Asia Telecommunications Pte Ltd (SEATH) for US$50.0 mln (RM203.5 mln) in cash which will boost the number of telco towers it owns. The vendor of the above company is Vietnam Infrastructure Ltd.

SEATH is the largest independent base transceiver stations (BTS) owner in Vietnam with 1,938 telecommunications towers. Upon the completion of the proposed acquisition, OCK group expects to gain a steady income stream as the BTS stations have long-terms lease agreements with network operators in Vietnam. As a result of this transaction, OCK will approximately have 3,000 tower assets across the ASEAN region by end-2016.

Comments

We view this acquisition as positive and earnings accretive over the long-term period, given that SEATH has been profitable over the past three years. The expansion will also bring OCK one step closer to becoming one of the largest telecommunication tower operator in the South East Asia region. Given that the acquisition will only be completed in 3-4 months’ time, we leave our earnings forecast unchanged for now and we maintain BUY recommendation with an unchanged target price of RM1.00.

Our target price is derived from a sum-of-parts (SOP) approach as we valued its telecommunication network services and green energy & power solutions business segments on a discounted cash flow approach (key assumptions include a WACC of 9.0%, terminal growth rate of 1.5%) to reflect its ability to generate recurring revenues and steady earnings growth over the longer term.

Meanwhile, we ascribe a 15.0x PER to both its fully-diluted trading and mechanical & electrical engineering services business, based on their potential earnings contribution in 2017.

COMPANY BRIEFS

Tenaga Nasional Bhd (TNB) has clarified that it has not been notified of the Energy Commission’s decision for the company to be invited to participate in Tadmax Resources Bhd’s 1,000 MW gas-fired (CCGT) power plant in Pulau Indah, Selangor. This was in response to a statement by Tadmax on 3rd August 2016 which said that the Government had given it a letter of award to develop the plant and specified that TNB was to be invited to participate.

This would be the third project awarded on a non-competitive or direct-negotiation basis after the controversial 2,000MW gas-fired power plant code-named Project 3B in Jimah, Port Dickson, and the 1,100MW-1,400MW CCGT power plant code-named Project 4A in Pasir Gudang, Johor. (The Star Online)  MISC Bhd’s 2Q2016 net profit rose 80.7% Y.o.Y to RM1.34 bln, mainly on a substantial gain from the acquisition of subsidiaries amounting to RM847.3 mln. Revenue for the quarter, however, fell 8.1% Y.o.Y to RM2.39 bln.

For 1H2016, cumulative net profit added 55.7% Y.o.Y to RM1.92 bln. Revenue for the quarter, however, declined 6.0% Y.o.Y to RM4.79 bln. A dividend of 10.0 sen per share, payable on 7th September 2016 was declared. (The Star Online)

The Sungai Besi-Ulu Kelang Elevated Expressway (SUKE) project is set to take off with the award of construction contracts worth RM766.1 mln to JAKS Resources Bhd and Zelan Bhd–Hasrat Sedaya Consortium.

The highway concessionaire, Projek Lintasan Kota Holdings Sdn Bhd’s (Prolintas) unit, Turnpike Synergy Sdn Bhd, had awarded JAKS a RM508.5 mln contract.

Separately, Zelan Bhd–Hasrat Sedaya Consortium, has been given a letter of acceptance worth RM257.6 mln. Works awarded to Zelan and its partner, Hasrat Sedaya Sdn Bhd, would cover about 1.7km along Jalan Taman Putra. JAKS, however, did not mention the stretch that it would cover.

Both contracts are for mainline and associated works and have a duration of 30 months, with completion targeted by 28th February 2019. (The Star Online)

SRS Consortium Sdn Bhd, a 60:20:20 joint venture between Gamuda Bhd, Loh Phoy Yen Holdings Sdn Bhd and Ideal Property Development Sdn Bhd, has duly accepted an extension of a Letter of Award (LoA) by the Penang state government to 28th February 2017 for its appointment as the project delivery partner (PDP) for the implementation of the Penang Transport Master Plan (PTMP).

The consortium had, on 14th August 2015, received the LoA from the Penang government, appointing it as the PDP for the implementation of the PTMP, the first PTMP project was expected to be rolled out by 2017. (The Edge Daily)

Wah Seong Corp Bhd's indirect subsidiary, PT Wasco Engineering Indonesia has been awarded a US$41.2 mln (RM166.7 mln) subcontract by Schneider Electric France SAS to design and build seven pre-fabricated area sub-stations for a project in Kazakhstan.

The subcontract, which is for the provision of engineering, design, fabrication and construction services for the oil and gas industry, is expected to commence in 3Q2016 and completed by 31st December 2018. (The Edge Daily)

Tien Wah Press Holdings Bhd's 2Q2016 net profit grew 11.3% Y.o.Y to RM6.1 mln, boosted by lower depreciation charge. Revenue for the quarter, however, fell 6.2% Y.o.Y to RM81.2 mln.

For 1H2016, cumulative net profit climbed 54.5% Y.o.Y to RM11.7 mln. Revenue for the period, however, decreased 6.0% Y.o.Y to RM163.6 mln. An interim dividend of 4.0 sen per share, payable on 28th October 2016 was announced. (The Edge Daily)

Pentamaster Corp Bhd's 2Q2016 net profit jumped 105.0% Y.o.Y to RM6.7 mln due to higher revenue and better product mix. Revenue for the quarter gained 61.2% Y.o.Y to RM38.9 mln.

For 1H2016, cumulative net profit surged 96.6% Y.o.Y to RM9.8 mln. Revenue for the period expanded 55.3% Y.o.Y to RM67.5 mln. (The Edge Daily)

Source: M+ Online Research - 5 Aug 2016