• Tracking the tepid sentiment on key regional stockmarkets and weaker crude palm oil prices, the FBM KLCI ended slightly lower by 0.1% to 1,626.93 yesterday. The FBM Small Cap (-1.3%), the FBM Fledging (-0.8%) and the FBM Ace (-1.8%) were also in the red, as with most of the broader market shares.

• Market breadth was negative as decliners outpaced the winners by more than two times. Traded volumes, however, rose 4.4% to 1.38 bln shares amid selling pressure on the lower liners.

• PPB Group (-26.0 sen) led the heavyweight losers on the FBM KLCI, followed by BAT (-16.0 sen), Genting (- 12.0 sen), Kuala Lumpur Kepong (-10.0 sen) and Telekom Malaysia (-10.0 sen). On the broader market, some of the other major decliners were Panasonic Manufacturing (-72.0 sen), Perusahaan Sadur Timah Malaysia (-26.0 sen), DKSH Holdings (-25.0 sen) and Ajinomoto (- 24.0 sen). Carlsberg fell 18.0 sen after reporting a 30.2% Y.o.Y fall in its 3Q2016 net profit to RM43.6 mln vs. RM62.5 mln in the previous corresponding period.

• Significant broader market gainers include Tasek (+28.0 sen), Bintulu Port (+25.0 sen), Success Transformer (+20.0 sen), Hume Industries (+12.0 sen) and LPI Capital (+12.0 sen). Meanwhile, Maybank (+14.0 sen), Axiata (+11.0 sen), Petronas Dagangan (+6.0 sen), Digi (+4.0 sen) and Public Bank (+4.0 sen) were among the index-linked heavyweight advancers.

• The majority of the Asian stockmarkets retreated ahead of key upcoming events like the Organisation of Petroleum Exporting Countries (OPEC) meeting, Italy’s referendum and the U.S. employment data. The Shanghai Composite Index, however, bucked the general negative tone to close 0.2% up, amid expectations that tighter property regulations will push funds into the equity markets. The Nikkei shed 0.3% with seven out-of-ten sectors in the red, while the Hang Seng Index snapped a two-day rally to close 0.4% lower. ASEAN equities finished broadly in the red.

• Wall Street eked-out small gains as strong housing and GDP data offset the pullback in crude oil prices ahead of the OPEC meeting. The Dow notched up a 0.1% gain, buoyed by gains in healthcare giants like Unitedhealth Group (+3.6%) and Pfizer (+1.2%). On the broader market, the S&P 500 and the Nasdaq rose 0.1% and 0.2% respectively.

• U.K. stockmarkets slipped on Tuesday as losses in the energy and mining sectors weighed on the FTSE (-0.4%). Germany’s DAX, however, booked in a 0.4% gain on the back of the rally in utilities and financials-related counters, while the CAC jumped 0.9% after paring earlier losses.

The Day Ahead

• We continue to think that the insipid market conditions will take precedent as investors maintained their cautious stance ahead of the highly probable interest rate hike in the U.S. early next month that could see more foreign funds exiting the Malaysian stockmarket.

• At the same time, the unstable Ringgit is further dampening market sentiments and this will exacerbate the already weak investor confidence, particularly among the lower liners and broader market shares.

• Hence, we see market breadth staying weak amid the continuing selling trend, albeit the key index could still be held up by the selected support by local institutions. Therefore, we see the FBM KLCI remaining within the 1,620-1,630 levels for the foreseeable future.

Company Updates

• Kimlun Corporation Bhd’s 3Q2016 net profit fell 15.8% Y.o.Y to RM16.5 mln, mainly due to higher operational cost arising from stamp duty costs for additional banking facilities and lower foreign exchange gains. Revenue for the quarter declined 7.0% Y.o.Y to RM224.2 mln.

• For 9M2016, cumulative net profit climbed 17.1% Y.o.Y to RM57.7 mln. Revenue for the period, however, slipped 14.2% Y.o.Y to RM705.3 mln. Despite that, the reported earnings came slightly above our expectations, accounting to 79.5% of our full year estimated net profit of RM72.6 mln. Meanwhile, the reported revenue came below expectation, accounting to 71.7% of our full year revenue forecast of RM984.2 mln.

• Separately, Kimlun has secured a RM52.8 mln contract for the supply and delivery of precast concrete tunnel segment linings to the Mass Rapid Transit 2 (MRT2) project. The supply contract is expected to last until 30th September 2019.

Comments

• We are not surprised by the award of abovementioned contract, given that Kimlun has a good track record of supplying the precast contact tunnel segment linings to the Mass Rapid Transit 1 (MRT1) project worth RM48.5 mln. Its manufacturing orderbook replenishment rate now stands at approximately RM250.0 mln, which is in line with our manufacturing orderbook assumption between RM250.0 mln-RM300.0 mln. With that, Kimlun’s outstanding manufacturing orderbook of approximately RM330.0 mln will provide its segment’s earnings visibility over the next three years.

• Despite the reported earnings topping our forecast, we made no changes to our earnings forecast as we deem that the majority of the construction projects are still at their initial stages of construction whereby upcoming results would be flattish and will only ramp-up in 2017 onwards.

• We reiterate our BUY recommendation on Kimlun with an unchanged target price of RM2.35. Our target price is derived from ascribing an unchanged target PER of 11.0x to its 2017 construction earnings and PER of 6.0x to its manufacturing earnings, while its property development segment’s valuation remain unchanged at 0.6x its BV due to its relatively small-scale development projects.

• OCK Group Bhd’s 3Q2016 net profit increased 11.6% Y.o.Y to RM5.5 mln on higher contribution across three business segments with the exception of mechanical & electrical engineering services segment. Revenue for the quarter added 21.8% Y.o.Y to RM101.9 mln.

• For 9M2016, cumulative net profit rose 11.8% Y.o.Y to RM14.6 mln. Revenue for the period increased 40.1% Y.o.Y to RM294.4 mln. The reported earnings only accounted to 51.4% of our full year estimated net profit of RM28.5 mln, while the reported revenue came within our estimates, accounting to 72.7% of our full year estimated revenue of RM404.8 mln. The variance in earnings is mainly due to higher depreciation cost and higher effective tax rate of 27.7%.

Comments

• Despite the reported earnings coming in below our full year forecast of RM28.5 mln, we think that earnings in 4Q2016 will accelerate, boosted by full contribution from the delivery for Phase 1 of its Myanmar telecommunication towers venture. Hence, we make no changes to our earnings forecast, pending an analyst briefing later and we maintain our BUY recommendation on OCK with an unchanged target price of RM0.95.

• We adopted a 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 Briefs

• Alliance Financial Group Bhd’s (AFG) 2QFY17 net profit fell marginally, by 1.5% Y.o.Y, to RM132.6 mln as gross interest margins fell due to the base rate reduction. Revenue for the quarter also declined marginally, by 1.7% Y.o.Y, to RM359.7 mln.

• For 1HFY17, however, cumulative net earnings gained 3.3% Y.o.Y to RM265.1 mln. Revenue for the period improved 1.9% Y.o.Y to RM723.5 mln. An interim dividend of 8.5 sen per share was declared. (The Star Online)

• DRB-Hicom Bhd’s 2QFY17 net losses stood at RM309.6 mln vs. a net profit of RM3.9 mln recorded in the previous corresponding quarter, due to the weak financial performance of its companies in the automotive and defense sectors and also exceptional items. Revenue for the quarter fell 18.7% Y.o.Y to RM2.64 bln.

• For 1HFY17, cumulative net losses widened to RM478.9 mln vs. a net loss of RM15.8 mln in the previous corresponding period. Revenue for the period fell 17.0% Y.o.Y to RM5.14 bln. (The Star Online)

• Ahmad Zaki Resources Bhd’s (AZRB) 3Q2016 net profit jumped 92.8% Y.o.Y to RM8.5 mln on higher contribution from its construction division. Revenue for the quarter expanded 52.9% Y.o.Y to RM270.9 mln.

• For 9M2016, cumulative net profit rose 8.5% Y.o.Y to RM18.9 mln. Revenue for the period grew 73.8% Y.o.Y to RM844.3 mln. (The Edge Daily)

• Panasonic Manufacturing Malaysia Bhd’s 2QFY17 net profit fell 23.6% Y.o.Y to RM30.8 mln on higher operating expenses and lower share of profits from an associated company. Revenue for the quarter, however, grew 4.2% to RM292.4 mln.

• For 1HFY17, cumulative net profit fell 4.2% Y.o.Y to RM69.1 mln. Revenue for the period, however, rose 7.7% Y.o.Y to RM590.2 mln. (The Edge Daily)

• Melewar Industrial Group Bhd’s 1QFY17 net loss stood at RM8.1 mln vs. a net profit of RM1.5 mln in the previous corresponding quarter, arising from additional loss-provision on a one-off contract. Revenue for the quarter, however, added 39.2% Y.o.Y to RM187.6 mln. (The Edge Daily)

• Lafarge Malaysia Bhd’s 3Q2016 net profit plunged 94.7% Y.o.Y to RM3.7 mln due to lower sales contribution from the cement segment as a result of soft market demand. Revenue fell 12.5% Y.o.Y to RM587.2 mln.

• For 9M2016, cumulative net profit sank 79.4% Y.o.Y to RM42.7 mln. Revenue for the period dipped 5.7% Y.o.Y to RM1.90 bln. (The Edge Daily)

• Lingkaran Trans Kota Holdings Bhd’s (Litrak) 2QFY17 net profit rose 51.6% Y.o.Y to RM58.9 mln, mainly due to the recognition of scheduled toll rates increase for the Damansara-Puchong Highway (LDP) effective 1st January 2016. Revenue for the quarter gained 38.6% Y.o.Y to RM132.4 mln.

• For 1HFY17, cumulative net profit climbed 45.7% Y.o.Y to RM120.0 mln. Revenue for the period improved 40.0% Y.o.Y to RM268.4 mln. (The Edge Daily)

• PBA Holdings Bhd’s 3Q2016 net profit jumped 73.3% Y.o.Y to RM22.7 mln, driven by the recognition of income for transfer of assets from customers. Revenue for the quarter, however, declined marginally, by 0.2% Y.o.Y, to RM82.2 mln.

• For 9M2016, cumulative net profit grew 53.6% Y.o.Y to RM45.0 mln. Revenue for the period added 11.3% Y.o.Y to RM247.0 mln. A first interim dividend of 1.75 sen per share, payable on 13th January 2017, was declared. (The Edge Daily)

• My EG Services Bhd's 1QFY17 net profit rose 42.2% Y.o.Y to RM40.5 mln on higher contribution from online renewal of foreign workers' insurance and foreign worker services. Revenue for the quarter increased 29.4% Y.o.Y to RM78.6 mln. (The Edge Daily)

• Mudajaya Group Bhd’s 3Q2016 net loss stood at RM67.6 mln vs. a net profit of RM14.3 mln recorded in the previous corresponding quarter due to losses from associate, RKM Powergen Pvt Ltd as well as impairment of assets provided for in the preceding quarter under its power segment. Revenue for the quarter, however, improved 57.6% Y.o.Y to RM170.5 mln.

• For 9M2016, however, cumulative net profit soared 681.8% Y.o.Y to RM137.6 mln. Revenue for the period rose 36.9% Y.o.Y to RM519.0 mln. (The Edge Daily)

• Karex Bhd’s 1QFY17 net profit fell 63.5% Y.o.Y to RM8.1 mln due to lower foreign exchange gain. Revenue for the quarter, however, rose 5.2% Y.o.Y to RM80.0 mln. A single tier tax exempt dividend of 2.0 sen per share, payable on 16th December 2016, was declared. (The Edge Daily)

• Allianz Malaysia Bhd’s 3Q2016 net profit dropped 7.4% Y.o.Y to RM72.7 mln, mainly due to lower underwriting profits for its general insurance operations. Revenue for the quarter, however, rose 1.5% Y.o.Y to RM1.15 bln.

• For 9M2016, cumulative net profit was flat at RM222.2 mln. Revenue for the period gained 3.5% Y.o.Y to RM3.47 bln. (The Edge Daily)

• Dutch Lady Milk Industries Bhd's net profit fell 18.6% Y.o.Y to RM40.7 mln due to higher expenditure on advertising and promotion to support new launches to drive sales. Revenue for the quarter, however, increased 9.2% Y.o.Y to RM279.6 mln.

• For 9M2016, cumulative net profit declined 3.9% Y.o.Y to RM111.3 mln. Revenue for the period, however, rose 6.2% Y.o.Y to RM776.1 mln. A single-tier interim dividend of 50 sen per share and a single-tier special interim dividend of 60 sen per share, payable on 29th December 2016 were declared. (The Edge Daily)

• Benalec Holdings Bhd’s 1QFY17 net profit surged 356.9% Y.o.Y to RM5.6 mln, on higher sales coupled with a recognition of a land disposal. Revenue for the quarter jumped 126.3% Y.o.Y to RM99.7 mln. (The Edge Daily)

• Media Prima Bhd’s 3Q2016 net loss stood at RM109.4 mln vs. a net profit of RM44.2 mln in the previous corresponding quarter, due to one-off restructuring expenses for its print media operation.

• For 9M2016, cumulative net loss stood at RM64.2 mln vs. a net profit of RM107.0 mln in the previous corresponding period. Revenue for the quarter fell 8.5% Y.o.Y to RM970.4 mln. A second interim dividend of 2.0 sen per share was declared. (The Edge Daily)  

Source: Mplus Research - 30 Nov 2016