The FBM KLCI (+0.03%) staged a mild recovery yesterday as a last minute buying support sent the key index to close in the positive territory. The lower liners also continue to trend mostly higher as the FBM Fledgling and FBM Ace added 0.2% and 0.4% respectively, while the Construction (+0.3%), Trading/Services (+0.1%) and Plantations (+0.9%) sectors outperformed the negative broader market.

Market breadth remained negative as losers outpaced gainers on a ratio of 439- to-384 stocks. Traded volumes, however, fell 8.6% with 2.85 bln shares exchanging hands.

KLK (+14.0 sen) topped the big board winners list, followed by Westports (+5.0 sen), DIGI (+4.0 sen), MISC (+4.0 sen) and Public Bank (+4.0 sen). Notable advancers on the broader market were Aeon Credit (+56.0 sen), Panasonic Malaysia (+42.0 sen), Malaysia Smelting Corporation (+21.0 sen) and Apex Healthcare (+18.0 sen) Classic Scenic gained 7.0 sen after reporting a strong set of quarterly earnings.

In contrast, Dutch Lady (-96.0 sen), United-Uli Corporation (-75.0 sen), SLP Resources (-28.0 sen) and Bursa Malaysia (-21.0 sen) were among the biggest decliners on the broader market. SAM Engineering sank 60.0 sen after reporting a weak set of quarterly earnings. Among the biggest losers on the key index were Petronas Gas (-6.0 sen), Genting (-3.0 sen), Axiata (-3.0 sen), CIMB (-2.0 sen) and Maybank (-1.0 sen).

Japanese stockmarkets closed lower as the Nikkei fell 1.6% after the strong Japanese Yen sent export shares lower. The Shanghai Composite declined 0.2%, but the Hang Seng Index (+1.0%) ended above the 23,000 psychological level and closed at its YTD high. ASEAN indices, meanwhile, ended mixed.

After enduring a choppy trading session, the Dow added 0.1%, boosted by the sharp recovery in crude oil prices that rose for the sixth straight session. On the broader market, the S&P 500 climbed 0.2% with eight-of-the ten main sectors closing in the green, while the Nasdaq also closed 0.2% higher.

European key indices - the FTSE (+0.1%), CAC (+0.4%) and DAX (+0.6%), all staged a mild recovery. This follows the Eurozone’s inflation rate in July 2016 rising 0.2% Y.o.Y - in line with economists’ expectations, while France’s unemployment rate stood at 9.9% in 2Q2016 - falling below 10% for the first time in almost four years.

THE DAY AHEAD

We continue to think that the market conditions are toppish and the upsides will remain hard to come by over the near term. Therefore, we expect the key index to continue lingering within a tight range as market participants await for fresh leads. At the same time, we also think that the bouts of profit taking could limit the potential near term upsides.

Consequently, we expect the key index to remain within the 1,690 and 1,700 levels with the latter level serving as the main resistance. Below the 1,690 level, there should be support at the 1,680 level.

While the index heavyweights are likely to stay rangebound, the rotational and speculative interest among the lower liners and broader market shares should sustain with retail players still taking advantage of the calmer market conditions to undertaking trading activities.

COMPANY UPDATE

Mitrajaya Holdings Bhd’s 2Q2016 net profit added 28.3% Y.o.Y to RM29.6 mln, mainly due to the improvements in both the construction and property development segments, coupled with the lower depreciation charges that offset the weakness in the South African property segment. Revenue for the quarter rose marginally by 1.0% Y.o.Y to RM245.6 mln.

For 1H2016, cumulative net profit climbed 31.8% Y.o.Y to RM48.1 mln. Revenue for the period increased 13.1% Y.o.Y to RM441.0 mln.

The reported earnings came in within expectations as it accounts to 50.1% of our full year estimated net profit of RM48.1 mln. The reported revenue, however, came slightly below our forecast, accounting to 45.4% of our full year estimated revenue of RM972.5 mln.

Comments

With the reported earnings falling within our estimates, we leave our earnings forecast unchanged and we maintain our BUY recommendation on Mitrajaya, but with a lower target price of RM1.65 (from RM1.70) after taking into account the dilution effect from an employee share option scheme which saw additional 714,700 shares being added to the group’s share issued.

Our target price is derived from ascribing an unchanged target PER of 9.0x to its 2017 (fully diluted) construction EPS of 10.7 sen, while the value of its property development units, both local and overseas, are valued at 0.8x their respective book values. At the target price of RM1.65, Mitrajaya will be trading at PERs of 11.5x and 10.4x in 2016 and 2017 respectively, which is close to the construction industry average of 11.0x.

COMPANY BRIEFS

Salcon Bhd and Benalec Holdings Bhd have decided to abort their collaboration for the establishment of water supply and sewerage treatment infrastructure in the Tanjung Piai Integrated Petroleum and Maritime Industrial Park, Johor following the expiry of the Memorandum of Understanding (MoU) inked on 27th August, 2015. The MoU has since expired and both parties do not intend to extend the validity of the MoU.(The Star Online)

Hong Leong Industries Bhd (HLI) registered a 60.0% Y.o.Y jump in 4QFY16 net profit to RM69.5 mln, from RM43.4 mln a year ago – mainly due to stronger contribution from its associate company and improved consumer products division. Revenue was up 9.0% Y.o.Y to RM573.6 mln, from RM527.8 mln in the previous year.

HLI’s FY16 net profit expanded 43.0% Y.o.Y to RM247.2 mln, from RM173.2 mln last year, on the back of a significant jump in share of profit in associated companies, reduced operating expenses and tax. Revenue climbed slightly by 2.0% to RM2.19 bln, from RM2.14 bln a year earlier. (The Edge Daily)

Magnum Bhd’s 2Q2016 net profit plunge 63.5% Y.o.Y to RM21.8 mln vs. RM59.8 mln a year earlier, dragged down by lower profit from the gaming division on higher payouts, albeit slightly offset by profits from the investment holdings and others division. Revenue also slipped 3.3% Y.o.Y to RM625.8 mln, from RM647.1 mln in 2QFY15.

Cumulative 1H2016 net profit shed 39.8% Y.o.Y to RM90.7 mln, from RM150.6 mln in the previous corresponding period, alongside revenue which fell 4.2% Y.o.Y to RM1.38 bln. The group has proposed a second interim dividend of 3.0 sen per share, payable on 30th September 2016. (The Star Online)

Dialog Group Bhd's 4QFY16 net profit jumped 22.5% Y.o.Y to RM77.9 mln, attributed to higher contributions from its joint venture businesses, despite slower upstream oil and gas (O&G) activities. Revenue for the quarter has also increased by 24.4% Y.o.Y to RM717.1 mln, compared to RM576.6 mln in 4QFY15..

In FY16, net profit rose 7.2% Yo.Y to RM294.9 mln, from RM275.1 mln in the previous year, while revenue expanded 7.5% Y.o.Y to RM2.53 bln vs. RM2.36 bln last year. Dialog is planning to pay a final dividend of 1.2 sen a piece, bringing its FY16 payout to 2.2 sen a share (The Edge Daily)

SapuraKencana Petroleum Bhd has completed and delivered its sixth and final pipelay vessel to Petróleo Brasileiro SA (Petrobras). The new vessel Sapura Rubi joins five other fully-integrated pipelay vessels that were delivered in stages and are all now working in Brazil's deepwater fields. (The Edge Daily)

Wing Tai Malaysia Bhd remained in the red for the second-straight quarter as its 4QFY16 net loss stood at RM11.4 mln, in comparison with a net profit of RM17.3 mln in 2Q2016 - mainly due to higher operating expenses and lower other operating income. Revenue also gave way, losing 6.0% Y.o.Y to RM62.5 mln, from RM66.5 mln a year ago.

For FY16, net profits dived 85.6% Y.o.Y to RM10.0 mln, from RM69.6 mln in the last corresponding year - pulled down by lower revenue which lost 12.8% Y.o.Y to RM275.8 mln and higher finance charge. Despite the weaker performance, Wing Tai recommended a final dividend of three sen per share for the quarter. (The Edge Daily)

Gabungan AQRS Bhd has secured a RM508.2 mln sub-contract for the construction of the Sungai Besi-Ulu Klang Elevated Expressway (SUKE) from Syarikat Muhibah Perniagaan Dan Pembinaan Sdn Bhd. The sub-contract works include the execution and completion of bridge structure works for the work package SUKE-CA3, construction and completion of the mainline and other associated works. (The Star Online)

Damansara Realty Bhd was awarded a 38-month contract worth RM124.0 mln to cater food for employees working at the Rapid Temporary Executive Village and Rapid Temporary Management Office at the Refinery and Petrochemical Integrated Development (RAPID) in Pengerang, Johor.

A joint-venture (JV) company formed by Damansara Realty and its partner, L.C Catering will undertake the job from Petronas Refinery and Petrochemical Corp Sdn Bhd. (The Star Online)

JCY International Bhd sank into the red with a 3QFY16 net loss of RM28.6 mln from a net profit of RM32.6 mln a year ago, mainly due to weaker revenue of RM343.8 mln vs. RM479.8 mln in 3QY15 and a one-time write-off of properties, plants and equipment of RM13.2 mln, due to cessation of its operations in Foshan, China.

Cumulative 9MFY16 net profit lost more than 95.0% Y.o.Y to RM6.4 mln, from RM133.9 mln a year ago, on falling revenue and forex losses, on top of higher general and administrative expenses. Revenue was down 10.0% Y.o.Y to RM1.33 bln. Notwithstanding the negative earnings, the group declared a third interim dividend of 1.25 sen per share. (The Edge Daily)

Petron Malaysia Refining & Marketing Bhd reported a 16.1% Y.o.Y drop in its 2Q2016 net profit to RM61.5 mln, from RM73.4 mln last year, due to tigher margins, while revenue for the quarter fell 19.2% Y.o.Y to RM1.83 bln, from RM2.27 bln a year earlier.

For the cumulative 1H2016 period, the firm posted a 40.0% Y.o.Y decrease in net profit to RM78.2 mln, compared to RM130.2 mln in 1H2015, due to lower margin, alongside revenue which contracted 15.0% Y.o.Y from RM4.11 bln in 1H2015 to RM3.49 bln. (The Star Online)

Vitrox Corp Bhd recorded a 44.6% Y.o.Y gain in its 2Q2016 net profit to RM14.4 mln, from RM10.0 mln in the previous corresponding year, on the back of lower provision for taxation with a new pioneer status granted by the International Trade and Industries Ministry. Quarterly revenue was 45.5% Y.o.Y higher at RM56.6 mln, from RM38.9 mln in 2Q2015.

Vitrox’s 1H2016 bottom line grew 55.7% Y.o.Y to RM30.1 mln, from RM19.3 mln due to the aforementioned tax benefits. Revenue also rose 56.1% Y.o.Y to RM112.7 mln, compared to RM72.2 mln a year ago. (The Edge Daily)

Hock Seng Lee Bhd’s (HSL) net profit declined 29.1% Y.o.Y to RM12.1 mln in 2Q2016, from RM17.0 mln previously, on weaker performance from its construction and property development segments, while revenue shrank 28.4% Y.o.Y to RM107.1 mln, from RM149.6 mln last year.

Its 1H2016 net profit slipped 22.7% Y.o.Y to RM28.3 mln, from RM36.7 mln in 1H2015, as revenue shed 25.8% to RM249.3 mln and operating expenses increase to RM35.7 mln, from RM47.7 mln last year. The group declared a first interim single-tier dividend of 5.0% per share, payable on 10th October 2016. (The Edge Daily)

Source: M+ Online Research - 19 Aug 2016