Despite erasing earlier losses, the FBM KLCI closed marginally lower by 0.1% amid fresh U.S. interest rate uncertainties. The FBM ACE (-1.0%), the FBM Small Cap (-0.2%) and the FBM Fledging (-0.3%) fell into the red territory, while only three sectors – Technology (+1.32%), Finance (+0.1%) and Properties (+0.4%) finished higher on the broader market.

Market breath turned negative as decliners overpowered gainers by 314-to- 513 stocks. Traded volume dropped 0.4% to 1.92 bln shares, as investors stayed on the sidelines, awaiting for fresh catalysts.

Key losers on the key index were BAT (- 62.0 sen), Tenaga Nasional (-12.0 sen), Maybank (-10.0 sen) Petronas Gas (-8.0 sen) and KLCC Property & REITs (-6.0 sen). Meanwhile, notable losers on the broader market include Nestle (-50.0 sen), Success Transformer (-25.0 sen), Panasonic Manufacturing (-18.0 sen) and Heineken Malaysia (-14.0 sen). UMW Holdings (-20.0 sen) fell after it sunk into the red with a 2Q2016 net loss of RM12.1 mln – dragged down by lower revenue and increased finance cost.

On the positive side, Dutch Lady (+86.0 sen), Khind Holdings (+43.0 sen), DKSH Holdings (+36.0 sen), Hong Leong Industries (+17.0 sen) and The Store Corporation (+28.0 sen) gained traction. Meanwhile, banking-heavyweights which led the intraday recovery on the Main Board were CIMB (+10.0 sen), Hong Leong Financial Group (+10.0 sen) and Public Bank (+8.0 sen). Other blue chip leaders include Genting Malaysia and Telekom Malaysia, which rose 5.0 sen each.

The Japanese stockmarket advanced amid the stronger Yen vs. the Greenback: as the Nikkei jumped 2.3% led by the financials, industrials and materials sector. On the other hand, the Hang Seng closed down 0.4%, while the Shanghai Composite Index flatlined. The majority of the ASEAN indices finished in the red zone as stocks came under pressure in anticipation of an interest rate hike in the near future.

Wall Street finished near a record high overnight, bolstered by better-than-expected consumer spending and a stronger U.S. Dollar. The Dow jumped 0.6%, led by heavyweight advancers like El du Pont de Nemours & Co (+1.2%) and Travellers Cos Inc (+1.1%). On the broader market, the S&P500 was up by 0.5%, while the Nasdaq reversed earlier gains, albeit closing 0.3% higher at 5,232.3 points.

European stocks started the week lower following hawkish bets on an interest rate hike by the end of this year. The FTSE rose 0.3%, as gains in the mining-related counters offset losses incurred by the healthcare industry. Meanwhile, the DAX and the CAC lost 0.4% each.

THE DAY AHEAD

The insipid market environment is likely to persist over the near term amid the continuing lack of catalysts with the ongoing corporate results season failing to provide significant market impetus. The key index is also holding firm at the lower end of its rangebound trend of 1,680 points as there continues to be support from domestic institutions to shore up the market.

Although the 1,680 level support level is holding for now, upsides will continue to be hard to come by amid the cautious market environment that is deterring investors from buy and hold strategies. Instead, the quick profit taking activities will continue that will limit the upsides, in our view. Hence, the 1,690 and 1,700 levels will continue to serve as the major hurdles, and if the 1,680 support gives way, the next resistance is at 1,675.

COMPANY UPDATES

OCK Group Bhd’s 2Q2016 net profit gained 6.3% Y.o.Y to RM5.5 mln on higher contribution across all its four business segments. Revenue for the quarter added 62.2% Y.o.Y to RM114.0 mln.

For 1H2016, cumulative net profit climbed 11.8% Y.o.Y to RM9.2 mln. Revenue for the period increased 52.2% Y.o.Y to RM192.5 mln. The reported earnings only accounted to 32.2% of our full year estimated net profit of RM28.5 mln, while the reported revenue came within our estimates, accounting to 47.5% of our full year estimated revenue of RM404.8 mln.

Comments

Despite the reported earnings only amounting to 32.2% of our estimated net profit of RM28.5 mln for 2016, we think that earnings in 2H2016 will catch up, boosted by contribution of its Myanmar venture. We also raised our earnings forecast by 2.5% to RM32.4 mln for 2017 to reflect the consolidation from the acquisition of SEATH and we maintain our BUY recommendation on OCK with a lower target price of RM0.95 (from RM1.00), taking into account of the dilution from the recent completion of its private placement.

We adopted the 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 target PER to both its fully-diluted trading and mechanical & electrical engineering services businesses, based on their potential earnings contribution in 2017.

COMPANY UPDATES

Kimlun Corporation Bhd’s 2Q2016 net profit climbed 54.8% Y.o.Y to RM24.1 mln, mainly due to the improvement in construction and manufacturing & trading segments. Revenue for the quarter, however, fell 4.7% Y.o.Y to RM246.4 mln due to lower balance of construction orders carried forward from the previous year.

For 1H2016, cumulative net profit gained 38.8% Y.o.Y to RM41.2 mln. Revenue for the period, however, contracted 17.1% Y.o.Y to RM481.2 mln. The reported earnings came in above our expectations, accounting to 61.8% of our full year estimated net profit of RM66.7 mln. Meanwhile, the reported revenue came within our expectation as it accounts to 48.9% of our full year revenue of RM984.2 mln.

Comments

Kimlun’s outstanding construction orderbook of approximately RM1.30 bln in 1H2016 will underpin its segment earnings until 2020. Kimlun has secured a total of RM975.4 mln worth of new construction projects YTD, accounting to 88.7% of our targeted orderbook replenishment rate of RM1.10 bln for the year.

Elsewhere, its outstanding manufacturing orderbook of RM300.0 mln will sustain its segment earnings over the next 18 months, while unbilled property sales of RM6.7 mln will be recognised progressively over the next 12 months.

As the reported earnings topped our forecast, we raised our earnings forecast by 13.2% and 10.0% to RM75.7 mln and RM82.5 mln in 2016 and 2017 respectively to reflect the stronger execution of better margin projects secured over the past year in the construction segment, while the manufacturing segment’s growth will be boosted by a better product mix and forex gains from its Singapore projects.

We reiterate our BUY recommendation on Kimlun with a higher target price of RM2.35 (from RM2.20). Our target price is derived from ascribing an unchanged target PER of 11.0x to its revised 2016 construction earnings and PER of 6.0x to its revised manufacturing earnings, while its property development segment’s valuation remain unchanged at 0.6x its BV due to its relatively small-scale development projects.

COMPANY BRIEFS

CIMB Group Holdings Bhd’s 2Q2016 net profit jumped 36.4% Y.o.Y to RM872.8 mln, boosted by its consumer and wholesale banking operations. Revenue for the quarter rose 1.2% Y.o.Y to RM3.90 bln.

For 1H2016, cumulative net profit added 38.3% Y.o.Y to RM1.69 bln. Revenue for the period improved 1.5% Y.o.Y to RM7.63 bln. (The Star Online)

AirAsia Bhd’s 2Q2016 net profit soared 40.8% Y.o.Y to RM342.1 mln, mainly due to a 40.2% jump in aircraft operating lease income and a 24.0% reduction in average fuel price to US$59 (RM236) per barrel compared to a year earlier. Revenue in the second quarter increased 22.7% Y.o.Y to RM1.62 bln.

For 1H2016, cumulative net profit surged 210.9% Y.o.Y to RM1.22 bln. Revenue for the period increased 26.7% Y.o.Y to RM3.32 bln.

Separately, AirAsia’s board of directors had approved the divestment of Asia Aviation Capital Ltd (AAC), the carrier’s wholly-owned aircraft leasing business. AAC carries out the aircraft leasing business within the AirAsia group and with third party airlines. (The Star Online)

Sunway Bhd’s 2Q2016 net profit slipped 35.0% Y.o.Y to RM154.4 mln, mainly due to lower fair value gains from the annual revaluation exercise done on Sunway Real Estate Investment Trust (REIT) properties. Revenue for the quarter, however, grew 11.0% Y.o.Y to RM1.16 bln.

For 1H2016, cumulative net profit fell 33.3% Y.o.Y to RM256.5 mln. Revenue for the period, however, increased 5.9% Y.o.Y to RM2.22 bln. An interim dividend of 5.0 sen per share was declared. (The Star Online)

My E.G. Services Bhd’s (MyEG) 4QFY16 net profit jumped 122.4% Y.o.Y to RM51.0 mln mainly from: (i) higher transaction volumes from the online renewal of foreign workers’ permits and foreign worker rehiring programme services, (ii) increase in contribution from Road Transport Department-related services, and (iii) contribution from its newly acquired subsidiary Cardbiz Holding Sdn Bhd and its group of companies. Revenue for the quarter gained 93.7% Y.o.Y to RM87.3 mln

For FY16, cumulative net profit surged 109.8% Y.o.Y to RM143.0 mln. Revenue for the year rose 99.0% Y.o.Y to RM281.6 mln. A final dividend of 1.3 sen per share was proposed.  Separately, MyEG has proposed 1-for-2 bonus issue of up to 1.20 bln shares. The e-Government services provider expects the issuance to be completed by 1Q2017. (The Star Online)

UMW Holdings Bhd’s 2Q2016 net loss stood at RM12.1 mln vs. a net profit of RM68.4 mln in the previous corresponding quarter, as earnings from the automotive segment was halved and its oil and gas (O&G) business sank into a loss. Revenue for the quarter dropped 18.3% Y.o.Y to RM2.85 bln.

For 1H2016, cumulative net profit plunged 98.1% Y.o.Y to RM4.5 mln. Revenue for the period slipped 25.0% Y.o.Y to RM5.05 bln. (The Star Online)

Hong Leong Financial Group Bhd’s (HLFG) 4QFY16 net profit declined 10.8% Y.o.Y to RM393.5 mln on higher operating expenses. Revenue for the quarter fell 1.0% Y.o.Y to RM1.21 bln.

For FY16, cumulative net profit fell 16.2% Y.o.Y to RM1.36 bln. Revenue for the year, however, gained 1.2% Y.o.Y to RM4.54 bln (The Edge Daily)

Felda Global Ventures Holdings Bhd's (FGV) 2Q2016 net profit rose 35.0% Y.o.Y to RM62.2 mln, mainly on lower minority interest. Revenue for the quarter, however, fell 1.2% Y.o.Y to RM4.14 bln.

For 1H2016, cumulative net loss stood at RM3.3 mln vs. a net profit of RM49.7 mln. Revenue for the period added 14.4% Y.o.Y to RM7.90 bln. (The Edge Daily)

Brahim’s Holdings Bhd’s 2Q2016 net loss stood narrowed to RM5.8 mln from a net loss of RM6.8 mln recorded in the previous corresponding quarter. Revenue for the quarter fell 8.4% Y.o.Y to RM61.5 mln.

For 1H2016, cumulative net loss stood at RM10.8 mln vs. a net loss of RM4.0 mln in the previous corresponding period. Revenue for the period decreased 20.2% Y.o.Y to RM121.9 mln. (The Edge Daily)

Melati Ehsan Holdings Bhd has clinched a Central Spine Road, Package 3 project worth RM99.0 mln from Public Work Department (JKR). The contract was for the stretch from Gua Musang, Kelantan, to Kampung Relong, Pahang and is expected to be completed by 15th September 2019. (The Edge Daily)

IOI Properties Group Bhd has successfully tendered for a 6.2-ac. parcel of leasehold land in Xiang An central business district in Xiamen, China, for RMB2.32 bln (approximately RM1.40 bln), of which 91.0% will be allocated for residential development, and the rest (9.0%) for commercial development and a community service centre.

Source: M+ Online Research - 30 Aug 2016