The FBMKLCI inched 0.2% higher last Friday on the back of buying support on selected heavyweights and the stronger Ringgit as investors look forward to the U.S. Federal Reserve Chair Janet Yellen’s speech for clues on the next interest rates hike. The key index also extended its gains by 0.5% W.o.W to close in the green. The majority of the lower liners also ended higher with the exception of the FBM Fledging (-0.2%), amid a mostly positive broader market.

Market breath was favourable as winners outweigh the losers on a ratio of 441-to- 360 stocks. Traded volume, however, fell 14.3% to 1.49 bln shares amid the still cautious investor sentiments.

Key index chart toppers include BAT (+54.0 sen) and Tenaga Nasional (+16.0 sen), while Genting Malaysia, Maxis and Maybank rose 10.0 sen each. Meanwhile, consumer-related counters like Ajinomoto (+46.0 sen), Padini (+33.0 sen) and Panasonic Manufacturing (+22.0 sen) led the broader market liners advancers, followed by KESM Industries (+30.0sen) and DKSH Holdings (+28.0 sen).

Significant broader market decliners were SHH Holdings (-23.0 sen), Apex Healthcare (-20.0 sen), UOA REIT (-14.0 sen), Enra Group (-11.0sen), AEON Co (- 10.0sen) and Riverview Rubber Estates (- 10.0sen). Key index underperformers were Genting (-18.0 sen), IHH Healthcare (-13.0 sen), RHB Bank (-8.0 sen) and Hong Leong Bank (-4.0 sen). Meanwhile, PPB Group loss 12.0 sen after reporting a 2Q2016 net loss of RM78.7 mln, mainly due to losses incurred by its associate – Wilmar International.

Key regional benchmark indices closed mostly on a negative tone, as the Nikkei dropped 1.2% following lower-than expected inflation data, raising concerns over the effectiveness of Japan’s stimulus programs. Meanwhile, the Shanghai Composite Index (+0.1%) flatlined as the Hang Seng Index rose 0.4% after lingering in the positive territory for the entire trading session last Friday. ASEAN stockmarkets, meanwhile, finished mostly higher.

U.S. stockmarkets reversed earlier gains to close on a softer footing as expectations rise for an interest rate hike this year. The Dow slipped 0.3% after eight out-of-the nine industries finished in the red. On the broader market, the S&P 500 (-0.2%) fel, as telecom and utilities counters dragged the index lower, while the Nasdaq (+0.1%) edged higher to finish at 5,218.9 points.

European benchmark indices climbed higher after Janet Yellen expressed optimism about the economy and an expectation that interest rate hikes are ahead. The FTSE rose 0.3%, on the back of gains in mining stocks like Glencore (+3.2%) and Rio Tinto (+3.3%). Meanwhile, the CAC and the DAX jumped 0.6% and 0.8% respectively to close strongly in the green.

THE DAY AHEAD

Malaysian stocks are likely to continue on their predominately sideway trend as it attempts to stay above the 1,680 support level following last Friday’s mild recovery. This is despite the weakness in U.S. stockmarkets at the end of last week as we think local institutions will continue to provide ample support amid a slower market environment.

Therefore, we think the key index will continue to gain ground over the near term as it looks to fortify its position above the critical support level of 1,680 level. However, we think the upsides may be limited as market players continue to take a cautious stance, including the lower liners and broader market shares.

Meanwhile, the resistances remain pegged at the 1,690 and 1,700 points respectively.

COMPANY UPDATES

Barakah Offshore’s 2Q2016 net profit rose 56.5% Y.o.Y to RM7.2 mln, owing to the higher contribution from the Pan Malaysia T&I project, Pengerang Pipeline project, Pan Malaysia Hook Up Commissioning and other pipeline services – Petronas Carigali’s PIG Trap System. Revenue for the quarter rose 10.5% Y.o.Y to RM136.8 mln.

For 1H2016, however, cumulative net profit halved to RM8.5 mln from RM19.8 mln in 1H2015, owing to the higher earnings base recorded in 1H2015. Revenue for the period, meanwhile, fell 23.7% Y.o.Y to RM240.2 mln (1H2015: RM314.8 mln) vs. our forecast of RM313.2 mln.

Comments

While there was a Q.o.Q improvement in its 2Q2016 earnings, its 1H2016 earnings, however, only accounts for 32.1% of our 2016 forecast. Despite the downward revision in the Pan Malaysia T&I and HUC unbilled sales quantum, the company believes that the move was not all lost to the company as the cost structure for operations have moved in tandem with the rates revision. The management also believes that the momentum in 2Q2016 has gathered pace and will continue to do so in 2H2016, based on the current activities that were undertaken at this juncture.

Meanwhile, we have also revised the orderbook replenishment rate from RM200.0 mln – RM300.0 mln to RM400.0 mln – RM500.0 mln for 2016 and 2017 respectively, given the improvement in work flows secured in 1H2016 and the progressive improvement in work flows after 1H2016, which is similar to the management’s guidance.

We maintain our HOLD recommendation with an unchanged target price (TP) of RM0.68 as the company is well supported by its unbilled orderbook of RM1.30 bln (with earnings visibility up until 2017-2018), while the management remains active in its project pre-qualification and bidding participation with a bidbook size of around RM1.90 bln for both local (70.0%) and overseas (30.0%) projects.

Our TP is arrived by ascribing an unchanged PER of 15.5x to our unchanged fully diluted 2017 EPS estimate of 4.4 sen. We make no changes to our 2016 estimates (despite the below-expectation 1H2016 earnings) as the bulk of balance for the T&I Package A project and the major works of a slew of recently secured contracts (1H2016) will be recognised in the 2H2016.

COMPANY UPDATES

Engtex Group Bhd’s 2Q2016 net profit gained 41.0% Y.o.Y, to RM20.8 mln, on the back of the extended recovery in steel prices which rose to an 18-month high - resulting in higher average selling prices (ASP) of certain manufactured steel products and metal-related trading products. Revenue for the quarter, however, fell marginally by 0.8% Y.o.Y to RM299.4 mln.

For 1H2016, cumulative net profit climbed 25.4% Y.o.Y to RM35.4 mln. Revenue for the period, however, contracted 7.8% Y.o.Y to RM558.5 mln. The reported earnings came above our estimates as its net profit amounted to 62.1% of our previous full-year net profit forecast of RM57.0 mln, while revenue came within our estimates, accounting to 49.7% of our total 2016 revenue forecast of RM1.12 bln.

Comments

As the reported earnings came above our estimates, we raised our earnings forecast by 20.0% and 14.0% to RM68.4 mln and RM73.0 mln in 2016 and 2017 respectively to reflect the stronger margins from higher ASPs. Consequently, we also upgrade our recommendation on Engtex to a BUY with a higher target price at RM1.50 (from RM1.35).

Our target price is derived from ascribing an unchanged target PER of 6.0x to our revised 2016 forecast earnings of its manufacturing and wholesale and distribution businesses, in line with its historical PER. Its property development segment’s valuation, meanwhile, remains unchanged at 0.6x its BV, based on its relatively small-scale property development projects.

COMPANY BRIEFS

Bumi Armada Bhd’s 2Q2016 net loss widened to RM518.3 mln from a net loss of RM291.5 in the previous corresponding quarter, mainly due to lower contributions from its floating production, storage and offloading (FPSO) and floating gas solutions (FGS) operations. Revenue for the quarter dropped 12.2% Y.o.Y to RM402.9 mln.

For 1H2016, cumulative net loss stood at RM494.9 mln vs. a net loss of RM219.5 mln in the previous corresponding period. Revenue for the period contracted 19.1% Y.o.Y to RM833.6 mln. The group’s total orderbook as at end-June 2016 stood at RM37.1 bln, of which RM24.5 bln are firm contracts and RM12.6 bln are optional extensions. (The Star Online)

Damansara Realty Bhd’s (DBhd) 2Q2016 net loss widened by 37.0% Y.o.Y to RM6.0 mln, mainly due to deferred and delayed sales of properties due to the current property market climate and rigid financing support by financial institution in general. Revenue for the quarter fell marginally, by 0.7% Y.o.Y, to RM44.6 mln.

For 1H2016, cumulative net loss stood at RM9.9 mln vs. a net profit of RM0.2 mln in the previous corresponding period. Revenue for the period decreased 15.1% Y.o.Y to RM87.9 mln.

Separately, DBhd’s Group CEO, Mohd Fazlin Shah Mohd Salleh, has resigned after only a year at the helm to pursue other personal interest. (The Star Online)

Pos Malaysia Bhd’s 1QFY17 net profit rose 40.1% Y.o.Y to RM31.8 mln due to higher profits generated from courier segment. Revenue for the quarter grew 6.5% Y.o.Y to RM415.9 mln. (The Star Online)

Ahmad Zaki Resources Bhd's (AZRB) 2Q2016 net profit fell 35.5% Y.o.Y to RM6.2 mln, due to the higher billings for certain projects under its construction business in the previous corresponding quarter. Revenue for the quarter, however, gained 69.7% Y.o.Y to RM264.1 mln.

For 1H2016, cumulative net profit retreated 20.0% Y.o.Y to RM10.4 mln. Revenue for the period, however, jumped 85.8% Y.o.Y to RM573.4 mln. A single-tier interim dividend of two sen per share was declared. (The Edge Daily)

Selangor Dredging Bhd’s (SDB) 1QFY17 net profit plunged 78.6% Y.o.Y to RM4.6 mln, as the previous corresponding period’s earnings included a one-off gain of RM13.7 mln from land disposal recorded. Revenue for the quarter slipped 4.3% Y.o.Y to RM61.4 mln. The group has approximately RM351.0 mln in unbilled sales. (The Edge Daily)

A winding- up petition served to Scomi Engineering Bhd’s major subsidiary, Scomi Rail Bhd over a RM1.0 mln claim, has been struck out. Scomi Rail succeeded in striking out the petition 4th dated 2016, served by PSI Incontrol Sdn Bhd. The petition was over a disputed sum of about RM1.0 mln allegedly owed to PSI in respect of supply contracts entered between Scomi Rail and PSI in September 2012. (The Edge Daily)

Daya Materials Bhd’s 2Q2016 net loss stood at RM18.1 mln vs. a net profit of RM8.8 mln in the previous corresponding quarter, on the back of lower vessel utilisation rate. Revenue for the quarter tumbled 50.2% Y.o.Y to RM96.2 mln.

For 1H2016, cumulative net loss stood at RM47.3 mln, vs. a net profit of RM8.5 mln in the previous corresponding period. Revenue for the period fell 28.6% Y.o.Y to RM282.8 mln. (The Edge Daily)

BIMB Holdings Bhd's 2Q2016 net profit rose 10.6% Y.o.Y to RM143.7 mln on better earnings from its Islamic banking and Takaful business. Revenue for the quarter gained 9.6% Y.o.Y to RM893.2 mln.

For 1H2016, cumulative net profit added 5.0% Y.o.Y to RM279.0 mln. Revenue for the period rose 10.5% Y.o.Y to RM1.79 bln. (The Edge Daily)

Datasonic Group Bhd's 1QFY17 net profit rose 68.2% Y.o.Y to RM20.8 mln, mainly due to higher topline growth from the supply of smart cards, datapages, consumables, components for smart cards and personalisation solutions. Revenue for the quarter grew 40.0% Y.o.Y to RM76.1 mln.

A first interim dividend of one sen per share, payable on 28th September 2016, was declared. (The Edge Daily)

Source: M+ Online Research - 29 Aug 2016