• Tracking the positive developments on Wall Street overnight, the FBM KLCI (+0.8%) extended its gains yesterday as buying interest in banking heavyweights took centerstage amid the more positive global equity market environment. The lower liners, however, ended mostly lower as the FBM Small Cap and FBM ACE fell 0.03% and 0.2% respectively, while the broader market closed in the positive territory.
• Market breadth turned positive as gainers outnumbered losers on a ratio of 438-to- 323 stocks. Traded volumes, however, fell 15.9% to 1.25 bln shares on uncertainties ahead of the US Presidential election outcome that limited the buying interest.

• Twenty seven-of-the 30 key index component stocks advanced, led by BAT (+RM1.40), followed by banking heavyweights like RHB Bank (+13.0 sen), Maybank (+12.0 sen), CIMB (+11.0 sen) and AmBank (+8.0 sen). Amongst the biggest gainers in the broader market include Kossan (+21.0 sen), Perusahaan Sadur Timah (+18.0 sen), Dutch Lady (+14.0 sen), Kobay (+13.0 sen) and Apex Healthcare (+12.0 sen).

• On the other side of the trade, P.I.E Industries fell 17.0 sen, while other notable decliners include Panasonic (- 38.0 sen) Tasek Corporation (-12.0 sen), Carlsberg (-10.0 sen) and Hong Leong Industries (-9.0 sen). Meanwhile, Petronas Gas (-4.0 sen) was the sole decliner on the FBM KLCI.

• Japanese equities slipped into the red as the Nikkei fell 0.03%. The Hang Seng Index added 0.5%, lifted by gains in consumer discretionary and properties stocks, while the Shanghai Composite closed 0.5% higher on the appointment of a new finance minister. ASEAN stockmarkets, meanwhile, ended mostly higher.

• U.S. stockmarkets extended their gains overnight as the Dow added 0.4% as Americans headed to the polls for a new President. On the broader market, the S&P 500 climbed 0.4% with nine-of-the ten main sectors advancing, while the Nasdaq closed 0.5% higher.

• European stockmarkets endured a volatile trading session before closing higher. The FTSE (+0.5%), CAC (+0.4%) and DAX (+0.2%) all extended their gains as the latter disregarded the weak Industrial Production Output data in September that fell 1.8% M.o.M vs. economists’ estimates of a 0.2% decline. Meanwhile, strongerthan-expected corporate earnings from Credit Agricole SA (+5.6%) and Associated British Foods PLC (+5.8%) also boosted the positive market sentiment.

The Day Ahead

• After making steady gains over the past two sessions, we think volatility could set in as market players await for the outcome of the U.S. Presidential election due out around midday today. A Trump presidency could see markets faltering as he is widely expected to pursue a protectionist and nationalistic agenda that could sap global trades. On the other hand, a Clinton presidency would likely see the continuation of most current policies.

• As markets await for the results, investor interest could also thin and upsides could be limited, in our view. There could also be some mild profit taking activities and consequently, the above event is likely to keep the FBM KLCI rangebound between 1,660 and 1,670 levels over the near term.

• The lackluster conditions will also persist among the lower liners and broader market stocks as most retail investors are also likely to stay on the sidelines until a clearer market direction emerges.

Company Update

• Hartalega Holdings Bhd’s 2QFY17 net profit gained 15.2% Y.o.Y to RM71.8 mln, from RM61.0 mln in the previous corresponding period, in-tandem with the stronger revenue contribution - mainly due to greater operational efficiency, which improved margins. Quarterly revenue also rose 15.2% Y.o.Y to RM437.0 mln vs. RM379.3 mln in 2QFY16.

• Cumulative 1HFY17 net profit was up marginally by 3.5% Y.o.Y to RM127.4 mln against RM123.1 mln in the previous corresponding year, while revenue rose 19.9% Y.o.Y to RM838.8 mln, in comparison to RM699.9 mln in 9MFY16.

• The reported earnings were slightly below our expectations, accounting to 44.6% of our full year estimated net profit of RM286.5 mln. However, the reported 1HFY17 revenue came within our expectation as it accounts to 50.8% of our full year revenue of RM1.65 bln.

Comments

• Despite the lower net profit, we leave our earnings forecast unchanged as we think that the margins will recover in the coming quarters, in view of stronger ASPs amid greater operational efficiency to mitigate the higher input cost as well as the benefits of a more favorable exchange rate.

• Nevertheless, we maintain our SELL recommendation, with an unchanged target price of RM4.35, as we believe Hartalega’s valuations are overstretched at the current juncture and have more than reflected its firm fundamentals. ? Our target price remains based on a 30% premium to its peer’s average of 19.2x on its FY17 EPS of 17.5 sen. The premium is premised on: (i) Hartalega’s position as the global market leader in the evergrowing nitrile glove industry, (ii) superior operational efficiency in terms of production speed and the lower number of workers per glove output, as well as (iii) solid fundamentals where it commands the highest net profit margin vs. its peers.

Company Briefs

• Titijaya Resources Bhd has inked a 70:30 joint-venture (JV) agreement with CREC Development (M) Sdn Bhd to develop a mixed development project at Embassy Row in Jalan Ampang, Kuala Lumpur.

• The 6.06 ac. project is estimated to have a Gross Development Value (GDV) of RM2.1 bln and will be carried out by the JV company, Ampang Avenue Development Sdn Bhd.

• CREC is a wholly-owned subsidiary of China Railway Engineering Corporation (M) Sdn Bhd, which in turn is a whollyowned subsidiary of China Railway Group Ltd. (The Star Online)

• Felda Global Ventures Holdings Bhd (FGV) has entered into a Memorandum of Understanding (MoU) with the Sabah Forestry Department to explore the possibility of collaborating with each other.

• The agreement will be valid for a two-year period or any extended period as agreed by the parties and will include the rehabilitation of riparian and forest buffer zone that lies between the forest reserve and FGV’s estate in Sahabat, Sabah. (The Edge Daily)

• Amcorp Properties Bhd's 2QFY17 net profit plummeted 88.9% Y.o.Y to RM1.8 mln, from RM16.5 mln last year - due to higher cost of sales and weaker other operating income. Revenue, however, rose 28.8% Y.o.Y to RM53.0 mln, from RM41.1 mln in 2QFY16.

• Cumulative 1HFY17 net profit plunged 91.4% Y.o.Y to RM6.3 mln vs. RM73.4 mln a year ago, despite a 28.2% Y.o.Y gain in revenue to RM96.8 mln, from RM75.5 mln previously. (The Edge Daily)

• Tien Wah Press Holdings Bhd's 3Q2016 net profit plunged 71.5% Y.o.Y to RM4.2 mln against RM14.6 mln a year earlier, attributed to lower revenue, thinning gross profit margin and a retrenchment cost of RM5.1 mln. Meanwhile, revenue for the quarter declined 13.9% Y.o.Y to RM82.9 mln, from RM96.3 mln in 3Q2015.

• For the cumulative 9M2016, Tien Wah’s net profit shed 28.4% Y.o.Y to RM15.9 mln, from RM22.2 mln in 9M2015, while revenue decreased 8.8% Y.o.Y to RM246.5 mln, from RM270.3 mln. (The Edge Daily)

• Petronas Dagangan Bhd (PetDag) saw its 3Q2016 net profit increase 13.7% Y.o.Y to RM248.8 mln, from RM218.9 mln a year ago, led by a stronger performance in its retail business. Revenue, however, retreated 14.9% Y.o.Y to RM5.54 bln, compared to RM6.51 bln in 3Q2015. PetDag also declared an interim dividend of 14.0 sen apiece, payable on 8th December, 2016.

• Its cumulative 9M2016 earnings fell marginally by 2.1% Y.o.Y to RM683.1 mln, from RM697.9 mln a year ago, dragged by a lower revenue of RM15.78 bln, which was 17.1% Y.o.Y lower from RM19.04 bln in the same period last year.

• Separately, the group expects to complete the sale of its subsidiary Thang Long LPG Co Ltd (TLLCL) by end- 2016. (The Edge Daily)

• Nationwide Express Courier Services Bhd has decided to merge its existing courier business with that of Airpak Express (M) Sdn Bhd through the acquisition of the latter's entire issued share capital worth RM33.2 mln. Nationwide expects to achieve cost savings, improvement in business efficiencies and economies of scale following the proposed acquisition.

• The group has inked a conditional share acquisition agreement to acquire 100.0% equity stake in Airpak from Ong Eng Lee and Lim Kew Wan. The purchase will be funded via RM30.0 mln in cash and the issuance of 6.3 mln new shares in Nationwide Express Holdings Bhd (NEHB) at an issue price of 50.0 sen apiece.

• Further, Ong also guarantees a net profit of RM5.0 mln each for FY17 and FY18. (The Star Online)

• Ekovest Bhd has secured a contract from DBKL to undertake improvement and beautification works worth RM157.3 mln. The contract, expected to take 104 weeks to complete will involve two work package, mainly — Package 1C which stretches from Dataran Merdeka and Jalan Tun Perak to Jalan Tun Tan Cheng Lock and Package 1D which covers Masjid India.

• The project works also include the construction of an interceptor system and related works to improve the river water quality, including the water treatment system along the Sungai Gombak and Sungai Klang under the River of Life project.

• With the above contract, Ekovest’s total outstanding construction orderbook stands at RM5.7 bln. (The Star Online)  

Source: Mplus Research - 9 Nov 2016