The FBM KLCI began the week on a positive note after registering a 0.1% gain – due to buying support of selected heavyweights in the eleventh hour. The lower liners, however, tanked alongside crude oil prices after the Organisation of the Petroleum Exporting Countries (OPEC) failed to reach an agreement on output cuts. The broader market, meanwhile, closed mostly in the green, led by Mining counters (+0.9%).

Market breadth remained insipid after decliners pounded winners on a ratio of 521-to-290 stocks. Traded volumes retreated marginally by 1.8% to 1.45 bln shares due to the lacklustre foreign participation amid the heightened global market uncertainties.

Chart-toppers on the Main Board include BAT (+84.0 sen), KLCC (+22.0 sen), Hong Leong Bank (+20.0 sen) and PPB Group (+12.0 sen). Genting Malaysia rose 20.0 sen after an investment bank upgraded its rating on the group to a Buy. Broader market leaders included Apex Healthcare, BIMB Holdings, Genting Plantations, and IJM Plantations, which all rose 20.0 sen each, while Panasonic Manufacturing gained 32.0 sen.

Underperformers in the broader market, meanwhile, were KESM Industries (-33.0 sen), George Kent (-27.0 sen), UMS Holdings (-20.0 sen), Felda Global Ventures (-19.0 sen) and Tasek (-16.0 sen). Less than half the key index declined – led by Axiata (-11.0 sen), Tenaga (-8.0 sen), Telekom Malaysia (-6.0 sen), IOI Corporation (-4.0 sen) and MISC Bhd (-2.0 sen).

Fresh uncertainties on the upcoming U.S. Presidential election pushed Asian stockmarkets lower after it was reported that the Federal Bureau of Investigation intended to review more emails related to the Hilary Clinton’s private server. The Nikkei declined 0.1% despite clawing back earlier losses, following slower-than expected trade data. Meanwhile, AIA Group (-4.8%) dragged the Hang Seng Index (-0.1%) lower after China banned mainland Chinese clients from buying life insurance policies in Hong Kong in a bid to curb local currency outflow. The Shanghai Composite Index also ended down 0.1% to 3,100.5 points. The majority of the ASEAN equities retreated on Monday’s close.

Wall Street finished marginally lower after gyrating between the positive and negative territories ahead of the U.S. Presidential Election and the FOMC meeting. The Dow (-0.1%) managed to reversed earlier losses due to higher-than expected consumer data, albeit still closing in the red, while the S&P 500 and the Nasdaq ended flattish on Monday.

European benchmark equities tanked overnight as investors shied away amid the political uncertainties in the U.S., lower crude oil prices and weaker corporate earnings. The FTSE lost 0.6%, while the DAX (-0.3%) retreated, dragged down by banking counters. The CAC also shed 0.9% to close just slightly above the 4500.0 level.

THE DAY AHEAD

There is no immediate change to our near term view and we expect the key index to trend within a tight range ahead of the FOMC meeting and the U.S. Presidential election next week. As it is, most market players are staying on the sidelines awaiting for the outcome on the above events that could dictate the market’s direction for the remainder of the year and beyond.

Under the prevailing environment, the key index is likely to range between the 1,670 and 1,680 levels as the FBM KLCI attempts to lift itself off the 1,670 level.

Still we think the near term upsides could be muted due to the lack of market participation, albeit there could selected interest in construction stocks after the government secured a soft loan for the construction of the East Coast Rail Link that could start next year.

MACRO BRIEF

Malaysia’s domestic Producer Price Index (PPI) grew 0.4% Y.o.Y to 102.0 in in September 2016 - marking its first positive growth in 24 months. The biggest contributors were recorded by the agriculture, forestry and fishing indices (+28.3% Y.o.Y), followed by water supply (+2.4% Y.o.Y) and electricity and gas (+1.4% Y.o.Y). The PPI for local production increased by 1.8% M.o.M. (Bernama)

COMPANY UPDATE

Coastal Contracts Bhd has aborted its plan to tap into Indonesia's liquefied natural gas (LNG) supply chain after its proposed joint venture with an Indonesian firm fell through. This came after the Memorandum of Understanding (MoU) it inked in August 2016 with PT Jaya Samudra Karunia Gas Internasional and Yudha Kurniawan Tanos in relation to the purchase of a 49.0% stake in PT Jaya Samudra Karunia Gas (JSK Gas) has lapsed on 28th October 2016.

Coastal was supposed to fork out US$6.6 mln (RM26.4 mln) for the stake. Under the deal, JSK Gas was to issue 1,500 new ordinary shares at an issue price of US$9,47 per share, which amounts to US$14.2 mln in total, to Coastal Contracts, subject to adjustment on completion. (The Edge Daily)

Comments

The lapse of the proposed acquisition above has deferred Coastal’s plan to establish a stream of stable recurring income in order to diversify its income from the depressed OSV business segment. Nevertheless, we still think that earnings visibility for now is still well underpinned by its sizeable and enviable cumulative orderbook size of approximately RM2.20 bln (RM800.0 mln for its OSV business segment, while the JU GCSU/rig business segment has an estimated orderbook value of RM1.40 bln), going forward.

The above cancellation has no impact on our earnings forecast as we have not imputed them in our model. As such, we maintain our HOLD recommendation on Coastal with an unchanged target price of RM1.65. Our target price is arrived by ascribing a target PER of 8.0x to our unchanged FY18 EPS estimate of 20.7 sen per share.

COMPANY BRIEFS

Ekovest Bhd, one of the project delivery partners for rehabilitating and beautifying the Klang and Gombak rivers, has received the development order for its EkoGateway@KL River City project with a gross development value of RM2.60 bln. The proposed development will be part of Kuala Lumpur River City, a project spanning 3km along the Gombak River.

The order would allow the company to begin on-site construction immediately. The project, which will take a total of six years to complete, includes the construction of a block of PPA1M. After the completion of the project, the Government would allocate a RM130.0 mln facilitation fund to it. (The Star Online)

Caring Pharmacy Group Bhd's 1QFY17 net profit fell 29.2% to RM0.7 mln, dragged down by higher cost of sales coupled with increase in selling and distribution expenses. Revenue for the quarter, however, gained 19.9% Y.o.Y to RM110.9 mln. (The Edge Daily)

The Malaysian Aviation Commission (MAVCOM) has revised the rates for passenger service charges (PSC) at Malaysian airports, effective 1st January 2017, which may impact the operations of AirAsia Bhd, its long-haul affiliate AirAsia X Bhd, and airports operator Malaysia Airports Holdings Bhd.

With the revision, PSC for domestic flights have been raised to RM11.00 for all airports (from previous rates of RM6.00 for KLIA2 and RM9.00 for KLIA and other airports). Meanwhile, rates for international destinations, excluding Asean countries, will be raised to RM73.00 for KLIA and other airports, while PSC for KLIA2 will be RM50. Currently, the rates for KLIA, klia2 and other airports are RM65, RM32 and RM65 respectively. (The Edge Daily)

Kumpulan Perangsang Selangor Bhd has received its shareholders' approval for the proposed acquisition of a 71.4% stake in Century Bond Bhd via its wholly owned subsidiary, Perangsang Packaging Sdn Bhd for RM150.0 mln. Century Bond is involved in the manufacturing of cement bags and holds a 60.0% market share in Malaysia, as well as a presence in Indonesia, Singapore and Thailand. (The Edge Daily)

Sasbadi Holdings Bhd's 4QFY16 net profit jumped 94.2% Y.o.Y to RM4.3 mln on higher other operating income. Revenue for the quarter, however, dropped 23.0% Y.o.Y to RM15.9 mln.

For FY16, cumulative net profit rose 9.9% Y.o.Y to RM16.9 mln. Revenue for the year grew 6.0% Y.o.Y to RM93.2 mln. (The Edge Daily)

Source:M+ Online Research - 1 Nov 2016