• The FBM KLCI (+0.1%) closed marginally higher after paring earlier losses in the eleventh hour, on the back of buyingsupport in Plantations heavyweights as well as banking-related counters following Bank Negara’s announcement to leave the overnight policy rate (OPR) unchanged. The lower liners, however was splashed in red, alongside the declining broader market.

• Market breadth was negative as underperformers clobbered advancers on a ratio of 547-to-238 stocks. Traded volumes continued to gain traction, albeit slightly by 4.2% to 1.56 bln shares due to selling-pressure amongst the lower liners.

• Almost half of the key index advanced yesterday including Petronas Dagangan (+12.0), Sime Darby (+11.0 sen), PPB Group (+10.0 sen) and KLCC (+9.0 sen). Hong Leong Bank rose 8.0 sen after posting a 7.9% Y.o.Y increase in its 1QFY17 net profit to RM542.6 mln. Malaysia Smelting Corporation (+34.0 sen) Huat Lai Resources (+20.0 sen), Perusahaan Sadur Timah Malaysia (+16.0 sen) Malaysia Airports (+13.0 sen) and Amway (+12.0 sen) buoyed the broader market.

• On the flip side, broader market decliners were DKSH (-87.0 sen), Carlsberg (-30.0 sen), Kossan Rubber Industries (-29.0 sen), Heineken Malaysia (-18.0 sen) and UMS Holdings (-17.0 sen). Meanwhile, key index losers include BAT (-50.0 sen) and CIMB (-6.0 sen), while Maxis, Petronas Gas and Westports fell 4.0 sen each.

• Key regional benchmark indices finished broadly negative, amid weaker crude oil prices and foreign capital outflows from emerging markets. The Hang Seng Index (-0.01%) ended flattish as gains in commodity-related stocks cushioned the decline in crude oil prices. The Shanghai Composite Index also lost 0.2% to close slightly below the 3400.0 psychological level, while the Japanese stockmarkets were closed for the Labour Thanksgiving Day. ASEAN stockmarkets, meanwhile, finished on a positive note.

• Wall Street posted its third-straight record high ahead of the Thanksgiving holidays on optimism for growth in the U.S. economy under President-elect Donald Trump’s economic policies. The Dow and the S&P 500 notched gains of 0.3% and 0.1% respectively, boosted by gains in industrials-related stocks, although the Nasdaq (-0.1%) lagged behind – due to weakness in the biotech sector.

• European stockmarkets retreated on Wednesday after a turbulent trading session - mainly due to losses in financials-related companies. The FTSE (- 0.03%) flatlined as investors digested a subdued U.K. budget announcement, while the CAC fell 0.4% ahead of the Italian referendum. The DAX closed lower by 0.5% on Wednesday’s close, dragged down by the insurance, media and retail stocks.

The Day Ahead

• Market conditions remain insipid with both the uninspiring market breadth and depth highlighting the present difficult local stockmarket environment and it is only left to domestic institutional funds to lift the key index into the positive zone at yesterday’s close.

• The continuing concerns over the U.S. interest rate and the Ringgit’s direction will weigh on most market player’s minds and this means that the difficult market condition is expected to persist over the near term, albeit we expect local funds to maintain their mild support moves to ensure that the key index stays afloat. The reduced following on the broader market and lower liners could prolong the negativity among the lower liners and broader market shares as fresh buying remains scant as most investors due to the lack of fresh positive leads.

• With the key index tethering on the 1,630 level, we think that it would attempt to break-out of the level over the near term and may potentially attempt to build up a base around the 1,630 to 1,640 levels, leaving 1,620 to remain the key support. MACRO NEWS

• Bank Negara has maintained the overnight policy rate (OPR) at 3.0% at its Monetary Policy Committee (MPC) meeting held yesterday, in line with market expectations. Earlier in July 2016, Bank Negara had lowered its benchmark rate by 25 basis points to 3.0%.

• Bank Negara reiterated that the domestic economy remains on track to expand as projected in 2016 and 2017. Headline inflation for 2016 is expected to be at the lower end of the projected range of 2.0% – 2.5%. Inflation is also expected to remain relatively stable in 2017 given the environment of low global energy and commodity prices as well as the generally subdued global inflation. (The Star Online)

Company Update

• Econpile Holdings Bhd’s 1QFY17 net profit added 13.5% Y.o.Y to RM16.4 mln, owing to higher billings from its stronger orderbook, coupled with the higher recognition from ongoing foundation work from property development projects, which yields better margins vs. piling works for infrastructure projects. Revenue for the quarter added 12.9% Y.o.Y to RM114.1 mln.

• Both the reported earnings and revenue came in below our expectations; accounting to 21.7% and 21.6% of our FY17 estimated net profit and revenue of RM75.8 mln and RM528.7 mln respectively.

Comments

• Despite the reported earnings coming in below our expectations, we leave our earnings forecast unchanged. We expect earnings to improve in the coming quarters after five sizable projects were completed during the quarter, whilst several newly secured projects were at the initial stages of construction.

• Hence, we maintain HOLD recommendation on Econpile with an unchanged target price of RM1.95, given that the recent spike in its share price offers limited upside, in our view. Our target price is derived from ascribing an unchanged target PER of 13.0x to its FY17 EPS of 15.0 sen, which is in line with its peers with similar market capitalisation.

Company Briefs

• Malakoff Corp Bhd’s subsidiary, Tanjung Bin Power Sdn Bhd (TBP) is seeking claims totalling RM785.0 mln from the consortium engaged to construct its 2,100 MW power plant in Johor. Its 90.0%- owned subsidiary began arbitration proceedings against Sumitomo Corp, Zelan Holdings (M) Sdn Bhd and SumiPower Malaysia Sdn Bhd.

• The arbitration is in relation to boiler tube failures at the plant in 2013. It followed a RM782.0 mln lawsuit filed by TBP against IHI Corp Japan, ISHI Power Sdn Bhd and IHI Power Systems (M) Sdn Bhd in December 2015.

• Malakoff has reported that there were at least 22 different boiler tube failures at the plant, which led to the plant’s inability to meet certain required output conditions. It was also reported that the problems, with two of the plant’s three 700 MW blocks taken offline, contributed to the delay in Malakoff Corp’s listing. (The Star Online)

• Mercury Industries Bhd is disposing of its entire stake in Silverlight Prospects Sdn Bhd to Interglobal Dynasty Sdn Bhd for RM50.5 mln. The proposed disposal of the auto refinish business is expected to be completed in 2Q2017.

• Based on Mercury’s unaudited net assets as at 30th September 2016, the group is expected to record a gain on disposal of about RM11.3 mln from the proposed disposal. The group aims to utilise the proceeds from the proposed disposal for repayment of bank borrowings and working capital purposes for its construction business. (Bernama)

• Bumi Armada Bhd’s 3Q2016 net loss stood at RM96.7 mln vs. a net profit of RM70.0 mln recorded in the previous corresponding quarter, due to lower income from its floating gas solutions (FGS) and floating production, storage and offloading (FPSO) operations. Revenue for the quarter fell 32.5% Y.o.Y to RM377.5 mln.

• For 9M2016, cumulative net loss widened to RM591.6 mln vs. a net loss of RM149.5 mln in the previous corresponding period. Revenue for the period declined 23.9% Y.o.Y to RM1.21 bln. (The Edge Daily)

• MMC Corp Bhd's 3Q2016 net profit jumped 121.5% Y.o.Y to RM105.9 mln, mainly due to the consolidation of NCB Holdings Bhd's earnings, land sale gains from the disposal of the Senai Airport Free Industrial Zone and absence of provision for impairment claims on a discontinued Middle East project. Revenue for the quarter grew 31.8% Y.o.Y to RM888.8 mln.

• For 9M2016, however, cumulative net profit sank 81.1% Y.o.Y to RM282.3 mln. Revenue for the period declined 32.2% Y.o.Y to RM2.78 bln. (The Edge Daily)

• AppAsia Bhd's unit, Extol International Sdn Bhd (EISB), has been appointed as Alibaba Cloud's non-exclusive reseller to drive the sale of certain cloud and computing and technology products and services for the latter. EISB will recruit, invite or solicit companies and individuals to purchase or subscribe for such cloud computing and technology products and services.

• Separately, the company is planning to list four e-commerce and mobile applications subsidiaries on the Australian Stock Exchange (ASX) via an investment holding company to be incorporated in Australia. The subsidiaries to be listed are: AppAsia Studio Sdn Bhd, AppAsia Mall Sdn Bhd, AppAsia International Sdn Bhd and AppAsia International Pty Ltd. (The Edge Daily)

• Genting Plantations Bhd's 3Q2016 net profit jumped 159.6% Y.o.Y to RM97.8 mln on stronger palm product selling prices, which offsets the overall decline the in production of fresh fruit bunches and lower property sales. Revenue for the quarter grew 23.8%Y.o.Y to RM396.7 mln.

• For 9M2016, cumulative net profit gained 27.0% Y.o.Y to RM165.6 mln. Revenue for the period improved 1.7% Y.o.Y to RM966.7 mln. (The Edge Daily)

• MBM Resources Bhd's 3Q2016 net profit surged 147.1% Y.o.Y to RM21.3 mln, due to favourable market response to Perodua's Bezza. Revenue for the quarter climbed 5.1% Y.o.Y to RM431.9 mln.

• For 9M2016, cumulative net profit declined 19.9% Y.o.Y to RM58.5 mln. Revenue for the period decreased 10.9% Y.o.Y to RM1.23 bln. (The Edge Daily)

• Parkson Holdings Bhd’s 1QFY17 net loss stood at RM62.6 mln vs. a net profit of RM63.3 mln registered in the previous corresponding quarter after its retailing division reported a higher operating loss of RM68.1 mln. Revenue for the quarter fell 5.9% Y.o.Y to RM878.2 mln. (The Edge Daily)  

Source: Mplus Research - 24 Nov 2016