• The FBM KLCI ended down 0.3% after lingering mostly in the negative territory on Wednesday – largely on sellingpressure in selected blue-chips and higher-than-expected inflation data. The lower liners advanced despite the tepid general sentiment – led by the FBM Fledging index (+0.4%). The broader market, however, slipped and closed mostly in the red, with the exception of the Industrial Products (+0.4%) sector.

• Market breadth was negative as decliners outpaced the outperformers on a ratio of 369-to-353. Traded volumes fell 10.1% to 1.16 bln shares amid quiet trading ahead of the Christmas holidays.

• Significant key index underperformers were BAT (-74.0 sen), Petronas Dagangan (-22.0 sen), Kuala Lumpur Kepong (-14.0 sen), RHB Bank (-7.0 sen), and Sime Darby (-7.0 sen). Meanwhile, other losers include Dutch Lady (-74.0 sen), Panasonic Manufacturing Malaysia (-20.0 sen), UMS Holdings (-12.0 sen), Cycle & Carriage Bintang (-10.0 sen) and LPI Capital (-10.0 sen).

• Broader market winners were Nestle (+30.0 sen), Shangri-la Hotels (+12.0 sen), Kossan Rubber Industries (+10.0 sen), Globetronics Technology (+8.0 sen) and LTKM (+8.0 sen). Meanwhile, Rhone Ma rose 12.0 sen on its listing debut. Meanwhile, main advancers on the bluechip gauge include Genting (+11.0 sen), Hong Leong Financial Group (+10.0 sen), MISC (+6.0 sen) and Petronas Chemicals (+4.0 sen). Tenaga Nasional rose 4.0 sen after it was awarded a 50MW large-scale solar photovoltaic project by the Energy Commission yesterday.

• The majority of Asian stockmarkets closed positively on Thursday, with the exception of the Nikkei, which was down 0.3% to 19,444.5 points. On the other hand, the Hang Seng Index and the Shanghai Composite Index gained 0.4% and 1.1% respectively after Sealand Securities took responsibility for its recent bond scandal – easing concerns on the liquidity squeeze in China markets. Meanwhile, ASEAN stockmarkets finished mostly lower.

• U.S. stockmarkets closed in the negative territory on Wednesday, alongside the weaker Greenback. The Dow shed 0.2% to close at 19,942.0 points, while the S&P 500 declined as gains in the energy sector offset losses in the real estate and healthcare sectors. The Nasdaq also finished down by 0.2%.

• Earlier, European equities slid, weighed down by the renewed fears of a potential meltdown in the financial sector as Spanish and Italian banks suffer from insufficient reserves. The FTSE (-0.04%) and the DAX (+0.03%) ended flattish, while the CAC (-0.3%) declined – dragged down by losses in Airbus (-1.3%).

The Day Ahead

• The immediate market environment is expected to remain relatively insipid as most market participants are staying on the sidelines with the lack of positive catalysts as well as the upcoming yearend holidays. Therefore, we expect most indices on Bursa Malaysia to continue on their drifting mode with the downside bias still in play.

• At the same time, the key index has also breached the 1,630 level and this is exacerbating the weakness spell, which looks to permeate longer and could send the FBM KLCI back to the 1,620 level in due course. Although, we see some domestic institutional support on selected key index constituents, the support is likely to be mild due to the weak market following.

• We also think the insipid conditions will extend to the lower liners and broader market shares as most retail players are on the sidelines as well. MACRO BRIEF

• Malaysia's November 2016 Consumer Price Index (CPI) advanced 1.8% Y.o.Y to 116.9 – higher than economists’ expectations of a 1.3% Y.o.Y increase due to higher food prices.

• The food and non-alcoholic beverage and housing indices added 3.8% Y.o.Y, whilst the water, electricity, gas & other fuels indices gained +2.1% Y.o.Y. The CPI for the period from January to November 2016 rose 2.1% Y.o.Y as compared to the same period last year. (The Star Online)

Company Update

• Mitrajaya Holdings Bhd’s wholly owned subsidiary, Pembinaan Mitrajaya Sdn Bhd has accepted the award for superstructure works on an office tower development at Bandar Medini Iskandar Malaysia, Johor from Medini Development Sdn Bhd for a contract sum of RM159.4 mln. The contract will commence on 17th January 2017 for duration of 24 months and is expected to be completed by 16th January 2019.

Comments

• The abovementioned project brings its construction orderbook replenishment to RM736.4 mln YTD, surpassing our targeted orderbook replenishment rate of RM700.0 mln. Similar with previous construction projects, we estimate that the project could command a pretax margin of about 11%-12%. ? With the award of the above project, Mitrajaya’s outstanding orderbook stands at approximately RM1.41 bln (implying an orderbook cover ratio of 1.8x of 2015 construction revenue) and will provide earnings visibility over the next two years.

• Despite the incorporation of the contract that has surpassed our targeted orderbook replenishment rate, we leave our earnings forecast unchanged as the aforementioned contract was secured at end-2016 and both the works and recognition will only commence in 2017.

• We reiterate our BUY recommendation on Mitrajaya with an unchanged target price of RM1.90. Our target price is derived from ascribing an unchanged target PER of 11.0x to its 2017 (fully diluted) construction earnings, while the value of its property development units, both local and overseas, are valued at 0.8x their respective book values.

Company Briefs

• Tanjung Offshore Bhd's subsidiary has secured a RM100.0 mln contract from Repsol Oil & Gas Malaysia Ltd to supply manpower over a three-year period. The duration of this contract is two years with a one year extension option commencing from the letter of award on 7th December 2016. (The Star Online)

• Boustead Plantations Bhd (BPB) has entered into a conditional share sale agreement with Permodalan Darul Ta’zim Sdn Bhd (PDT) for the proposed disposal of BPB’s 76.1% equity interest in Boustead Sedili Sdn Bhd for a total cash consideration of RM60.0 mln as part of its ongoing exercise to unlock value.

• Upon completion, BPB is expected to realise an estimated net gain on disposal of RM31.5 mln. The sale consideration was reached on a willing-seller-willingbuyer basis and represents a premium of RM3.5 mln or 6.2% over the adjusted effective net asset value of the sale shares held by BPB of approximately RM56.5 mln.

• The proceeds from this disposal will be utilised for repayment of bank borrowings. Hence, it results in interest savings of about RM2.5 mln based on an interest rate of 4.4% p.a. The disposal is expected to be completed by 1Q2017. (The Star Online)

• Hai-O Enterprise Bhd’s 2QFY17 net profit jumped 78.0% Y.o.Y to RM15.9 mln, underpinned by better performance from its multi-level marketing (MLM) division. Revenue for the quarter gained 35.6% Y.o.Y to RM99.8 mln.

• For 1HFY17, cumulative net profit added 66.8% Y.o.Y to RM25.7 mln. Revenue for the period improved 38.4% Y.o.Y to RM178.4 mln.

• Separately, Hai-O has proposed a onefor-two bonus issuance and the establishment of an employee share option scheme (ESOS) of up to 15.0% of its issued and paid-up share capital.

• The bonus issuance is on the basis of one bonus share-for-every two existing Hai-O shares held and will entail the issuance of up to 101.1 mln new shares of 50 sen each in Hai-O.

• As for the proposed ESOS, it shall be effective for five years from the date of implementation, and can be extended for up to another five years at the discretion of the board.(The Edge Daily)

• Amcorp Properties Bhd (AmProp) is planning to venture into the Hong Kong property market via a tie-up with Grosvenor Asia Pacific Ltd. Under a coinvestment agreement inked between Grosvenor Asia and AmProp's indirect wholly-owned unit Amcorp Orient Ltd , a joint venture company known as GDPHK Holdings Ltd will be formed.

• Both Amcorp Orient and Grosvenor Asia, which is a wholly-owned unit of international private property firm Grosvenor Group Ltd, will contribute about RM201.0 mln (HK$349.0 mln) each as capital to the joint venture company. The co-investment agreement shall be for seven years and can be extended by another two years. (The Edge Daily)

• Hock Seng Lee Bhd’s (HSL) Managing Director, Datuk Paul Yu Chee Hoe and three other directors have been served with an originating summons on issues of disclosure to the relevant authorities in relation to the acquisition and disposal of shares in the holding company of HSL - Hock Seng Lee Enterprise Sdn Bhd.

• The suit was initiated by its shareholder Yii Chee Ming, who also sought the removal of Datuk Paul, Executive Directors Tony Yu Yuong Wee and Lau Kiing Kang and Non-Executive Director Lau Kiing Yiing as directors. (The Edge Daily)

• Malaysia Building Society Bhd has received the green light from Bank Negara Malaysia (BNM) to commence talks with Asian Finance Bank (AFB) on a potential merger and acquisition (M&A) deal.

• MBSB plans to negotiate with the existing shareholders of AFB, namely Qatar Islamic Bank, RUSB Investment Bank Inc, Tadhamon International Islamic Bank and Financial Assets Bahrain WLL. BNM requires that the negotiations be completed within six months from the date of the letter. (The Edge Daily)  

Source: Mplus Research - 22 Dec 2016