The FBM KLCI (-0.1%) traded mostly in the negative territory yesterday, owing to the selling pressure on selective banking heavyweights. The lower liners – FBM Small Cap (-0.5%), FBM Fledgling (-0.7%) and FBM Ace (-0.3%) were all in the red, while the Properties (+0.2%) and Mining (+3.5%) sub-sectors outperformed in the negative broader market.

Expectedly, market breadth stayed negative as losers outpaced gainers on a ratio of 2-to-1 stocks. Traded volumes, however, added 5.4% to 1.94 bln shares as profit taking activities amongst the lower liners escalated.

Topping the decliners list on the FBM KLCI was BAT (-14.0 sen), followed by Tenaga (-8.0 sen), IHH (-6.0 sen), Public Bank (-4.0 sen) and Hong Leong Bank (- 2.0 sen). Consumer products bellwethers like Dutch Lady (-48.0 sen), Ajinomoto (- 30.0 sen), Carlsberg (-RM1.82), Panasonic Malaysia (-50.0 sen), Carlsberg (-28.0 sen), Heineken Malaysia (-22.0 sen) and Lay Hong (-20.0 sen) were amongst the biggest losers on the broader market.

Among the biggest gainers on the broader market were Ajinomoto (+16.0 sen), UMW (+13.0 sen), Hartalega (+12.0 sen) and Kluang Rubber (+11.0 sen). DKSH jumped 18.0 sen after reporting a strong set of quarterly earnings. Key advancers on the big board were Genting (+14.0 sen), Petronas Gas (+10.0 sen), Petronas Dagangan (+6.0 sen), Maxis (+3.0 sen) and AmBank (+2.0 sen).

Japanese stockmarkets rebounded as the Nikkei gained 0.6% after the Japanese Yen retreated, while automotive manufacturers like Toyota Motor Corporation (+2.1%) and Nissan Motor (+2.7%) advanced. The Hang Seng Index slipped 0.8%, while the Shanghai Composite fell 0.1% on the weakness in financial and property stocks. ASEAN indices, meanwhile, ended mostly lower.

Wall Street closed lower overnight as the Dow (-0.4%) slipped to a two-week low on the selloff in healthcare shares, coupled with the weak existing new home sales data in July. On the broader market, the S&P 500 declined 0.8% dragged down by the healthcare sector (-1.6%), while the Nasdaq ended 0.8% lower.

The FTSE declined 0.5% as mining stocks closed in the red after Glencore Inc (-3.1%) reported a weak set of quarterly earnings. Both the CAC and DAX, however, outperformed to close 0.3% higher each as the latter saw its 2Q2016 GDP rose 3.1% Y.o.Y - in line with economists’ forecast.

THE DAY AHEAD

The FBM KLCI’s sideway trend is likely to prolong in the absence of new leads and largely in tandem with the direction of key global stock indices. Consequently, we expect the key Malaysian stockmarket barometer to remain rangebound within the 1,680 and 1,700 levels for the near future.

Still, the odds remains for more near term consolidation to the 1,680 support level amid the overnight weakness on Wall Street and continuing profit taking on selective index heavyweights. This is also leaving the 1,680 support level vulnerable and if it breached, then the support level will be lowered to the 1,670 level.

We also expect the lower liners and broader market shares to continue experiencing profit taking activities as well, amid the lack of fresh leads and weaker all round market sentiments.

MACRO BRIEF

Malaysia's inflation rate, as measured by the Consumer Price Index (CPI), rose 1.1% Y.o.Y to 115.1 in July 2016, as prices of meat, vegetables and fish rose. This was, however, slower than the forecast of a 1.2% Y.o.Y increase.

Among the major groups that recorded higher prices were the index for food & non-alcoholic beverages, (+3.8% Y.o.Y) and alcoholic beverages and tobacco (+19.9%).

On a monthly basis, the CPI for July 2016 increased 0.3% to 115.1. The CPI for January to July 2016 rose 2.4% Y.o.Y. (The Star Online)

COMPANY UPDATE

Protasco Bhd is teaming up with a Kelantan state government-linked firm, Kijang Kuari Sdn Bhd, to jointly undertake road maintenance work in the state on a 60:40 basis, via a new company to be set up, for RM25.7 mln over an initial two-year period out of the total 10-year contract.

The maintenance contract awarded by the Kelantan Public Works Department involves the supply, deliver and paving of asphaltic concrete and crusher run for the state roads, as well as to do all incidental works necessary from the quarry to the site. The subsequent contract sum shall be reviewed by the Public Works Department every two years, based on the prevailing market price of the material and labour costs in the state of Kelantan. (The Edge Daily)

Comments

Protasco now has secured its’ second concession contract in 2016 (inclusive of the renewal of maintenance contract for the Federal Roads in Pahang, Terengganu, Kelantan and Selangor). We think that the group will not be taking up further leverage to fund the aforementioned project, as it is able to deploy its assets from the recently expired maintenance contract for state roads in Terengganu.

Similar with the previous construction contracts secured, we expect the project to command an EBITDA margin of 13%-15%. Protasco’s outstanding concession orderbook now stands at approximately RM4.66 bln, which will provide earnings visibility until 2026.

Given that the concession contract falls within our oderbook replenishment rate, we made no changes to our earnings forecast and we maintain our BUY recommendation on Protasco with an unchanged target price RM2.10.

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 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 over the next two years.

COMPANY BRIEFS

Hap Seng Plantations Holdings Bhd registered a 21.5% Y.o.Y increase in its 2Q2016 net profit to RM19.8 mln, from RM16.3 mln a year ago, on the back of higher selling price of crude palm oil (CPO) and palm kernel (PK), albeit offset by lower sales volume of CPO. Quarterly revenue was 12.8% Y.o.Y higher at RM110.6 mln, from RM98.1 mln in the prior year's corresponding quarter.

Hap Seng's cumulative 1H2016 net profit, however, fell by 3.5% Y.o.Y to RM36.4 mln, compared to RM37.8 mln last year - mainly due to lower sales volume caused by severe drought brought by the El Niño phenomenon earlier this year. Revenue, meanwhile, inched up by 1.4% Y.o.Y to RM214.7 mln, from RM211.9 mln previously. The group has proposed a first interim dividend of three sen per share, which will go ex on 7th September 2016. (The Edge Daily)

Perisai Petroleum Teknologi Bhd is in talks with the bondholders of its S$125.0 mln (US$92.4 mln) bond, following the fall of its interest cover ratio below the required minimum in 2Q2016 due to continually low crude oil prices. The bond is expected to mature on the 3th October 2016.

Perisai sunk into the red with a 2Q2016 net loss of RM2.7 mln, from a net profit of RM1.6 mln in 2Q2015, while revenue fell marginally by 1.1% Y.o.Y to RM53.1 mln, compared to RM53.7 mln last year. The lower bottom line was attributed to a lower share of profit from its joint-venture company and higher finance costs.

Cumulative 1H2016 net loss stood at RM6.7 mln compared to a net profit of RM8.6 mln previously, partly due to a forex loss of RM13.4 mln and lower share of contribution from its joint-venture, as well as an increased in finance charges. Revenue meanwhile, fell 2.2% Y.o.Y to RM108.0 mln vs. RM110.4 mln in the previous corresponding period. (The Edge Daily)

Hibiscus Petroleum Bhd saw a turnaround in its 4QFY16 net profit to RM19.0 mln, from a net loss of RM34.3 mln, due to higher contribution from the production and sales of oil and gas from the Anasuria Cluster in U.K. Revenue also ballooned to RM50.6 mln, from RM831,000 a year earlier.

For FY16, however, the group remained in the red with net loss of RM60.0 mln, compared with RM65.3 mln in FY15, although revenue skyrocketed to RM83.6 mln, from RM7.1 mln a year earlier.

IJM Corp Bhd's 1QFY17 net profit plunged nearly 66.0% Y.o.Y to RM115.5 mln, from RM336.8 mln last year, despite an 11.0% Y.o.Y gain in its revenue to RM1.31 bln, in comparison to RM1.18 bln last year.

The drop in earnings was partly due to the recognition of a one-off disposal gain of its 74.0%-owned subsidiary in Jaipur-Mahua Tollway Pte Ltd in the previous corresponding period.

With an all-time high outstanding order book of RM8.6 bln and more infrastructure contracts flowing, IJM Corp foresees its construction division to make up for the slowdown in the property business. (Bernama)

Panasonic Manufacturing Malaysia Bhd’s 1QFY17 net profit jumped 20.4% Y.o.Y to RM38.3 mln, from RM31.8 mln a year earlier, alongside revenue that rose 11.4% Y.o.Y to RM297.8 mln.

Moving forward, the group expects the political uncertainties in the Middle East and fluctuating Ringgit against the Greenback to have significant impact on its export revenue. (The Edge Daily)

Parkson Holdings Bhd 4QFY16 net loss widened to RM95.8 mln, from RM87.2 mln last year – dragged down by the subdued consumer sentiment and growing competition in China, despite an improved revenue that grew 2.8% Y.o.Y to RM884.1 mln, from RM860.0 mln in 4QFY15.

For FY16, Parkson reported a net loss of RM89.5 mln against a net profit of RM46.6 mln, mainly due to poor performance of its China retailing business, property and others segment, although revenue rose slightly by 3.7% Y.o.Y to RM3.88 bln, compared with RM3.74 bln in FY15. (Malay Mail Online)

Can-One Bhd's 2Q2016 net profit was 14.0% Y.o.Y higher at RM27.0 mln, from RM23.7 mln in 2Q2015, contributed by higher sales and sales mix in its food products division, as well a share of profit from its associate Kian Joo Can Factory Bhd. Quarterly revenue also rose 12.0% Y.o.Y to RM242.1 mln, from RM216.6 mln in 2Q2015.

Its cumulative 1H2016 net profit, however, fell slightly by 2.0% Y.o.Y to RM38.0 mln, from RM38.7 mln in the preious corresponding year, mainly due tighter competition and losses contributed by its flexi packaging and rigid packaging section. Revenue however, improved 10.0% Y.o.Y to RM446.9 mln, from RM407.9 mln in 1H2015. (The Edge Daily)

Source: M+ Online Research - 25 Aug 2016