• Although key regional indices ended broadly higher, the FBM KLCI fell 0.4% - dragged down by the prolonged weakness in the Malaysian Ringgit as well as lower crude oil prices ahead of the upcoming Organisation of Petroleum Exporting Countries (OPEC) meeting. Lower liners like the FBM Small Cap (- 0.3%), the FBM Fledging (-0.1%) and the FBM Ace (-0.8%) also declined amid a mostly negative broader market.

• Market breadth remained negative as losers outweigh advancers on a ratio of 452-to-302 stocks. Traded volumes meanwhile slipped 16.6% to 1.3 bln shares as the trading thinned ahead of the Thanksgiving holiday in the U.S.

• Significant losers on the key index were BAT (-64.0), Axiata (-17.0 sen), Hong Leong Financial Group (-14.0 sen) and Genting-related counters like Genting Malaysia and Genting, which was down by 9.0 sen each. Broader market underperformers were Nestle (-50.0 sen), Panasonic Manufacturing (-42.0 sen), Dutch Lady (-26.0 sen), Lafarge Malaysia (-24.0 sen) and Can-One (-15.0 sen).

• Meanwhile, broader market advancers included Malaysia Smelting Corporation (+20.0 sen), Malaysian Pacific Industries (+17.0 sen), Perusahaan Sadur Timah Malaysia (+14.0 sen), DKSH Holdings (+11.0 sen) and KESM Industries (+11.0 sen). Banking heavyweights like AmBank (+4.0 sen), CIMB (+4.0 sen), Hong Leong Bank (+2.0 sen) and Maybank (+2.0 sen) dominated the Main Board winners’ lis, as investors’ cheered the central bank’s decision to leave OPR unchanged. Meanwhile, Petronas Dagangan closed up 2.0 sen.

• Japanese stockmarkets advanced for the tenth consecutive days, as the lower Yen boosted the outlook for exporters. The Nikkei rose 0.9% to 18,333.41 points, while the Shanghai Composite Index (+0.02%) flatlined. The Hang Seng Index, however, bucked the general positive sentiment to close in red, falling 0.3% after lingering in the negative territory during the intraday session. ASEAN stockmarkets, meanwhile, finished mostly down.

• Key European indices eked-out small gains to close higher, amid subdued trading as U.S. stockmarkets were close for the Thanksgiving holiday. The FTSE rose 0.2% after gyrating between the negative and positive zone - backed by gains in Direct Line Insurance (+2.8%) and 3i (+2.8%). The CAC also increased 0.3%, as with the DAX with a 0.3% gain, despite the lower-than-expected business confidence data reported by the German Ifo Institute.

The Day Ahead

• While we expected stocks on Bursa Malaysia to follow through with its near term gains, the selling impetus returned yesterday to leave a dour note on the market as well as nullifying all the near term positivity.

• As it is, most market players are staying cautious over the Malaysian stockmarket’s direction amid the heightened expectation that U.S. interest rates will be raised next month – potentially signally the start of a rate upcycle. At the same time, the unstable Ringgit will also see more foreign buyers reducing their shareholding of Malaysian stocks.

• Therefore, we expect the market’s weakness to stay as the key index has failed to clear the 1,630 level, which will continue to serve as the main resistance, with the 1,620 the near term support.

Company Update

• Oldtown Bhd posted a 5.5% Y.o.Y drop in its 2QFY17 net profit to RM12.6 mln vs. RM13.4 mln – mainly due to weaker contribution from its operation of café chain segment, led by increased staff costs, higher depreciation charges, as well as a write-off from several outlet closures. Revenue, however, rose 7.5% Y.o.Y to RM99.5 mln, from RM92.6 mln.

• Cumulative 1HFY17 net profit was up 16.1% Y.o.Y at RM26.5 mln, from RM22.8 mln previously - contributed by higher export sales from its manufacturing of beverages or FMCG segment. Revenue also added 8.4% Y.o.Y to RM202.4 mln, compared to RM186.7 mln in 1HFY16.

• Both the reported earnings and revenue were within our expectations, accounting to 47.9% and 48.9% of our FY17 estimated net profit and revenue of RM55.3 mln and RM413.9 mln respectively.

Comments

• With the results coming in within our estimates, we leave our earnings forecast unchanged, pending an analyst briefing later and we maintain our HOLD recommendation on Oldtown with an unchanged target price of RM2.00. Our target price is derived from ascribing an unchanged target PER of 16.5x to its FY17 EPS of 12.3 sen. The targeted PER is based on a discount to the 22x-24x average PER of consumer products bellwethers like Nestle and Dutch Lady due to the smaller market capitalisation of Oldtown.

• Oldtown has 238 existing café outlets as of 1H2017, with 14 new café outlets earmarked to be opened in 2HFY17. Moving forward, the group plans to focus on international expansion to counter the soft local consumer sentiment, while pursuing advertising and marketing activities, such as participating in international exhibitions to search for potential business partners.

• Protasco Bhd’s 3Q2016 net profit declined 7.0% Y.o.Y to RM14.3 mln, dragged down by the weakness in the maintenance segment on non-renewal of two state roads maintenance contracts, coupled with the near completion of its property development project – Phase 1 of De Centrum. Revenue for the quarter fell marginally by 0.4% Y.o.Y to RM302.8 mln.

• For 9M2016, cumulative net profit slipped 9.1% Y.o.Y to RM42.0 mln. Revenue for the period declined marginally by 0.9% Y.o.Y to RM826.1 mln. Despite that, the reported earnings came slightly above our expectations, accounting to 77.2% of our full-year net profit forecast of RM54.4 mln. The reported revenue, meanwhile, only amounted to 71.5% of our full year revenue forecast of RM1.16 bln.

Comments

• As the reported earnings came slightly above our forecast, we raised our earnings estimates for 2016 and 2017 by 8.0% and 7.4% to RM58.8 mln and RM61.9 mln respectively, after adjusting our earnings forecast to account for lower finance costs and lower effective tax rate of 31.0% (previously at 32.5%). Consequently, we maintain our BUY recommendation on Protasco with a higher target price RM1.70 (from RM1.65).

• Our target price is derived from ascribing an unchanged target PER of 11.0x to its 2016 construction earnings, a target PER of 8.0x (unchanged) to its concession and engineering services’ earnings, while its education and trading earnings remain pegged at target PERs of 6.0x respectively due to their smaller scale businesses. Its property development division’s valuation remains unchanged at 0.6x of its BV.

Company Briefs

• Malayan Banking Bhd’s (Maybank) 3Q2016 net profit fell 5.4% Y.o.Y to RM1.79bil, mainly due to a lower tax charged in the previous corresponding quarter. Revenue for the quarter declined marginally by 0.8% Y.o.Y to RM11.28 bln.

• For 9M2016, cumulative net profit slipped 15.5% Y.o.Y to RM4.38 bln. Revenue for the period, however, added 13.2% Y.o.Y to RM33.41 bln. (The Star Online)

• Axiata Group Bhd’s 3Q2016 net profit sank 71.2% Y.o.Y to RM256.6 mln, as the previous corresponding period included exceptional gains. Revenue for the quarter, however, grew 2.8% Y.o.Y to RM5.46 bln.

• For 9M2016, cumulative net profit declined 61.1% Y.o.Y to RM813.8 mln. Revenue for the period, however, rose 8.6% Y.o.Y to RM15.77 bln. (The Star Online)

• Genting Bhd’s 3Q2016 net profit rose 59.9% Y.o.Y to RM577.2 mln, mainly due to lower net fair value loss on derivative financial instruments and lower impairment losses. Revenue for the quarter grew marginally by 0.8% Y.o.Y to RM4.68 bln.

• For 9M2016, cumulative net profit declined 4.5% Y.o.Y to RM1.00 bln. Revenue for the period, however, increased 3.3% Y.o.Y to RM13.61 bln. (The Edge Daily)

• AirAsia Bhd has reported that bids are coming in for its leasing arm, Asia Aviation Capital Lt, worth some US$1.00 bln, with eventual sale of the unit to take place in early 2017.

• This is part of the airline's plans to dispose of its non-core businesses. The largest low-cost carrier (LCC) in Asia will also go to the markets with two potential initial public offerings, namely its flight crew training centre, AirAsia Academy on Bursa Malaysia and Asean Holding Co on the Hong Kong stock exchange.

• Separately, Air Asia’s 3Q2016 net profit stood at RM353.9 mln vs. a net loss of RM405.7 mln recorded in the previous corresponding quarter due to increase in number of passengers and higher revenue per available seat kilometre (RASK). Revenue for the quarter rose 11.3% Y.o.Y to RM1.69 bln.

• For 9M2016, cumulative net profit stood at RM1.57 bln. Revenue for the period increased 20.9% Y.o.Y to RM5.00 bln. (The Edge Daily)

• Magnum Bhd's 3Q2016 net profit gained 44.9% Y.o.Y to RM55.0 mln, on lower prize payout for its gaming segment. Revenue for the quarter, however, fell 2.0% Y.o.Y to RM647.2 mln.

• For 9M2016, cumulative net profit dropped 22.7% Y.o.Y to RM145.7 mln. Revenue for the period fell 3.5% Y.o.Y to RM2.03 bln. A third interim dividend of 3.0 sen per share, payable on 28th December 2016 was declared. (The Edge Daily)

• Aeon Co (M) Bhd's 3Q2016 net profit plunged 82.0% Y.o.Y to RM5.4 mln on higher operating costs, new store and malls expense and higher interest expense. Revenue for the quarter climbed 2.6% Y.o.Y to RM965.3 mln.

• For 9M2016, cumulative net profit declined 44.1% Y.o.Y to RM53.2 mln. Revenue for the period added 5.6% Y.o.Y to RM3.02 bln. (The Edge Daily)

• IHH Healthcare Bhd's 3Q0216 net profit increased 46.3% Y.o.Y to RM173.3 mln after the foreign exchange losses on Acibadem Holdings’ non-Turkish Lira borrowings narrowed significantly. Revenue for the quarter climbed 18.3% Y.o.Y to RM2.44 bln.

• For 9M2016, cumulative net profit increased 26.4% Y.o.Y to RM654.9 mln. Revenue for the period improved 20.0% Y.o.Y to RM7.39 bln. (The Edge Daily)

• KNM Group Bhd's 3Q2016 net profit slipped 52.7% Y.o.Y to RM1.1 mln, due to losses incurred in its Americas segment. Revenue for the quarter fell 10.4% Y.o.Y to RM410.7 mln.

• For 9M2016, cumulative net profit declined 57.0% Y.o.Y to RM18.7 mln. Revenue for the period increased 4.4% Y.o.Y to RM1.24 bln. (The Edge Daily)

• JAKS Resources Bhd’s 3Q2016 net profit surged 134.5% Y.o.Y to RM13.9 mln. Revenue for the quarter increased 83.2% Y.o.Y to RM209.1 mln.

• For 9M2016, cumulative net profit jumped 102.2% Y.o.Y to RM24.8 mln. Revenue for the quarter rose 56.3% Y.o.Y to RM491.1 mln. (The Edge Daily)

• Palette Multimedia Bhd plans to diversify into traditional Chinese medicine (TCM) to expand its earnings base after it entered into a term sheet for a proposed acquisition of a 51.0% stake in Genopharma Sdn Bhd (GSB) for RM1.5 mln.

• GSB is principally involved in the trading of TCM, food and herbal supplement. Currently, the products of GSB are being sold at TCM clinics, pharmacies and chain stores. In addition, GSB also supplies herbal based medicines and supplements to hospitals and clinics in Malaysia. (The Edge Daily)  

Source: Mplus Research - 25 Nov 2016