Despite opening lower at the start of the trading bell, the FBM KLCI pared off all its intraday losses, before closing 0.2% higher yesterday. The lower liners, - FBM Small Cap (-0.7%), FBM Fledgling (-0.6%) and FBM Ace (-0.4%), however, extended their losses, while the Consumer Products (-0.3%), Industrial (-0.04) and Plantations sectors (-0.04%) underperformed the positive broader market.

Market breadth remained negative as losers outnumbered gainers on a ratio of 533-to-303 stocks. Traded volumes slipped 15.8% to 1.85 bln shares amid the increasingly negative market sentiments.

BAT (+40.0 sen) topped the FBM KLCI’s winners list, followed by Astro (+11.0 sen), Petronas Chemicals (+11.0 sen), Hong Leong Financial Group (+10.0 sen) and Petronas Gas (+6.0 sen). Among the other big gainers of the day were Lay Hong (+75.0 sen) which closed at a fresh 10-year high, United Plantations (+50.0 sen), Aeon Credit (+34.0 sen), United Uli- Corporation (+29.0 sen) and Pos Malaysia (+22.0 sen).

Notable losers on the broader market include consumer bellwethers like Dutch Lady (-78.0 sen), Panasonic Malaysia (- 50.0 sen), Nestle (-24.0 sen) and Ajinomoto (-22.0 sen). Tan Chong Motor Holdings fell 2.0 sen after slipping into the red in the latest quarterly results release. Leading the big board decliners were Petronas Dagangan (-10.0 sen), KLK (-10.0 sen), Genting (-5.0 sen), Public Bank (-2.0 sen) and Maybank (-1.0 sen).

Japanese benchmark indices extended their gains as the Nikkei gained 0.3%, boosted by the weaker Japanese Yen against the U.S. Dollars. The Shanghai Composite fell 0.8% on profit taking activities in shipping and commodities related companies, while the Hang Seng Index (+0.3%) recouped all its intraday losses to close positive in the final trading hour. ASEAN indices, meanwhile, ended mostly lower.

U.S. stockmarkets endured a volatile trading session before closing mostly lower overnight as the Dow fell 0.1%. On the broader market, the S&P 500 closed 0.1% lower, dragged down by the energy sector (-0.9%) after crude oil prices halted a seventh consecutive session of rally, but the Nasdaq gained 0.1%.

Earlier, European benchmark indices - the FTSE (-0.4%), CAC (-0.2%) and DAX (-0.5%), all erased their intraday gains to extend their losses amid the weakness in crude oil prices. Adding to the woes was the selling pressure in mining giants such as Glencore PLC (-2.2%), Anglo American PLC (-4.0%) and Antofagasta PLC (-3.5%).

THE DAY AHEAD

Although the key index managed to post a positive performance yesterday, we continue to think that the market conditions are still cautious as there remains a dearth of positive leads. As it is, yesterday’s upsides were mainly selective buying from institutional players that helped to negate the mostly negative market environment – a condition that is likely to prevail for longer following the weakness in most key global stock indices.

Therefore, we think that the FBM KLCI is likely to maintain its sideway trend within the 1,680-1,700 points level over the near term. We also think that the slight downside bias will prevail on the back of the weakness in overseas markets.

The lower liners and broader market shares will continue to see a mixed-to- lower performance after the recent selldown of several stocks and retail investors are likely to continue their profit taking activities as they retreat to the sidelines.

COMPANY UPDATE

Protasco Bhd’s 2Q2016 net profit contracted 19.9% Y.o.Y to RM14.4 mln, dragged down by the weakness in both its maintenance and property development segments, coupled with the higher effective tax rate of 35.7% (vs. 28.3% reported in 2015) which offset the stronger earnings from the construction segment. Revenue for the quarter, however, gained 27.6% Y.o.Y to RM396.2 mln.

For 1H2016, cumulative net profit slipped 10.2% Y.o.Y to RM27.7 mln. Revenue for the period was marginally lower by 1.2% Y.o.Y to RM523.3 mln. Both the reported earnings and revenue only amounted to 39.6% and 40.4% of our full year net profit and revenue forecast of RM70.0 mln and RM1.30 bln respectively.

Comments

With the reported earnings coming below our forecast, we trimmed our earnings estimates for 2016 and 2017 by 22.2% and 23.8% to RM54.4 mln and RM57.7 mln respectively, after adjusting our earnings forecast to account for the weaker maintenance segment, coupled with the higher effective tax rate. We, however, maintain our BUY recommendation on Protasco with a lower target price RM2.10 (from RM2.40).

At the target price of RM2.10, Protasco will be trading at prospective PERs of 13.0x and 12.3x in 2016 and 2017 respectively, which is close to the construction industry average of 11.0x-13.0x.

Our target price is derived from ascribing an unchanged target PER of 11.0x to its 2016 construction earnings, a target PER of 8.0x (unchanged) to its concession and engineering services’ earnings, while its education and trading earnings remain pegged at target PERs of 6.0x respectively due to their smaller scale businesses. Its property development division’s valuation remains unchanged at 0.6x of its BV.

COMPANY BRIEFS

Boustead Plantations Bhd registered a two-fold gain in its 2Q2016 net profit to RM97.5 mln, from RM48.6 mln a year ago, mainly due to gains on land disposal amounting to RM83.2 mln, while revenue was up 14.0% Y.o.Y to RM174.9 mln, from RM153.4 mln in 2Q2015.

Cumulative 1H2016 net profit surged 150.5% Y.o.Y to RM140.1 mln, in comparison to RM55.9 mln in 1H2015 – on the back of the gains recognised from the above land sale and higher selling prices of palm product. Revenue rose 9.3% Y.o.Y to RM311.9 mln, compared to RM285.3 mln in the previous corresponding year. The group proposed a second interim dividend of 3.0 sen per share, payable on 20th September 2016.

Moving forward, Boustead expects the low crude oil prices and stiff competition to persist amid the uncertain global economy. However, the group is optimistic that CPO prices will continue to trade within a reasonable range in view of depleting palm oil inventories worldwide. (The Edge Daily)

Alliance Financial Group Bhd‘s (AFG) 1QFY17 net profit expanded by 8.7% Y.o.Y to RM132.5 mln, from RM121.9 mln last year, attributed to higher interest income. Meanwhile, quarterly revenue was up marginally by 2.4% Y.o.Y to RM474.9 mln, from RM463.8 mln in 1QFY16.

Interest income stood at RM474.9 mln, which was 2.4% Y.o.Y higher than RM463.8 mln in 1QFY16.

Going forward, AFG plans to improve its balance sheet efficiency and risk adjusted returns and focus on loan origination efforts in small medium enterprise (SME), commercial, and consumer unsecured loans as well as optimise the funding cost and mix in FY17. (The Edge Daily)

Sunway Construction Group Bhd (SunCon) has been awarded a construction contract for a new campus of the International School of Kuala Lumpur in Ampang, worth RM268.0 mln.

The project, which consists of the main building works for the new school along Jalan Ampang Hilir, is expected take 22 months to complete. Todate, the group’s outstanding orderbook stands at RM4.9 bln. (The Star Online)

Salcon Bhd has clinched a RM66.8 mln subcontract for the Langat Centralised Sewage Treatment Plant project from MMC Engineering Services Sdn Bhd, a subsidiary of MMC Corp Bhd.

The 24-month subcontract involves the conversion of 10 sewage treatment plants into network pumping stations. The above contract award brings the total value of projects won by the group this year to RM300.0 mln. Todate, Salcon has tendered for RM2.2 bln worth of water and wastewater projects, both locally and overseas. (The Star Online)

Southern Steel Bhd’s 4QFY16 net loss widens significantly to RM112.7 mln from RM1.2 mln previously, due to a write-off of property, plant and equipment (PPE) worth RM141.0 mln. Revenue also fell by 3.2% Y.o.Y to RM590.9 mln, from RM610.7 mln in 4Q2015.

The PPE write-off attributed to the termination of a contract signed with Danieli & C. Officine Meccaniche SpA in July brought Southern Steel’s FY16 net loss to RM221.2 mln vs. RM117.6 mln in the previous corresponding period, while revenue shed 5.1% Y.o.Y to RM2.4 bln, from RM2.53 bln.

On future prospects, the group foresees a volatile market as the outcome of the safeguard measure petitions against cheap steel imports from China is still pending. (The Star Online)

JAKS Resources Bhd's net profit 2Q2016 tripled to RM9.8 mln, compared to RM3.3 mln in the corresponding period a year ago – buoyed by improved performance of the construction division and the trading and manufacturing divisions. Meanwhile, revenue for the quarter surged 80.0% Y.o.Y to RM159.1 mln, from RM88.3 mln in 2Q2015.

Cumulative 1H2016 net profit jumped 72.2% Y.o.Y to RM10.9 mln, from RM6.3 mln last year as revenue expanded 40.9% Yo.Y to RM281.9 mln, from RM200.1 mln a year earlier.

The group expects its construction division to perform satisfactorily in the foreseeable future, on the back of existing domestic contracts and new projects from Vietnam. However, its property division is expected to face challenges amid the slower economic momentum. (The Edge Daily)

Lion Corp Bhd's 4QFY16 net loss shrank to RM94.4 mln, from RM207.8 mln in the previous corresponding period, as a result of lower foreign exchange losses and lower impairment losses. Meanwhile, quarterly revenue plunged 93.2% Y.o.Y to RM29.8 million, from RM436.5 mln in 4QFY15.

The group’s FY16 net loss narrowed to RM459.4 mln, from RM523.0 mln last year alongside revenue, which lost 66.4% Y.o.Y to RM701.2 mln, from RM2.09 bln previously.

Lion Corp foresee tougher operating environment ahead, dragged by the temporary cessation of operations of a major subsidiary, Megasteel Sdn Bhd. (The Edge Daily)

UMW Oil & Gas Corp Bhd (UMWOG) registered a 2Q2016 net loss of RM67.2 mln, from a net profit of RM4.5 mln in the previous corresponding year, amid the lackluster oil and gas industry. Revenue for the quarter lost 29.1% Y.o.Y to RM130.0 mln, from RM183.4 mln in 2Q2015.

For the cumulative 1H2016 period, net loss stood at RM132.3 mln, compared with a net profit of RM36.6 mln in 1H2015, while revenue lost 56.1% Y.o.Y to RM217.7 mln, from RM495.9 mln previously. (The Star Online)

AMMB Holdings Bhd’s 1QFY17 net profit declined 4.9% Y.o.Y to RM323.0 mln, in comparison to RM339.5 mln last year, while its revenue was flat at RM2.06 bln vs. RM2.11 bln in 1QFY16.

The fall in the bottom line was mainly due to higher other operating expenses and lower net interest income and Islamic banking business. (The Edge Daily)

Source: M+ Online Research - 23 Aug 2016