• The FBM KLCI (+0.01%) finished flattish despite optimism of further supply cuts from the Organisation of Petroleum Exporting Countries (OPEC) that is likely to see oil prices recovering further. Meanwhile, the key index rose 0.5% W.o.W to close slightly above the 1707.0 psychological level. The FBM Small Cap and the FBM Fledging rose 0.2% each, although the FBM ACE lost 0.3% amid a mixed broader market last Friday.

• Market breadth was muted as decliners outrun the advancers on a ratio of 427-to- 431. Traded volumes also fell 8.2 % to 2.11 bln shares amid buying-interest in the lower liners.

• Genting-related companies like Genting Malaysia (+16.0 sen) and Genting (+3.0 sen) rallied, while other key-index outperformers were BAT (+38.0 sen), Petronas Chemicals (+20.0 sen) and Maybank (+6.0 sen). Brewers like Carlsberg and Heineken Malaysia rose 28.0 sen and 22.0 sen respectively, followed by Success Transformer (+19.0 sen), DKSH Holdings (+13.0 sen) and POS Malaysia (+12.0 sen).

• Significant broader market losers were Nestle (-48.0 sen), AEON Credit Service (- 20.0 sen), UMW Holdings (-17.0 sen), Genting Plantations (-12.0 sen) and Mega First Corporation (-9.0 sen). Blue chip decliners last Friday include Hap Seng Consolidated (-20.0 sen), Hong Leong Financial Group (-16.0 sen), Axiata (-15.0 sen), Public Bank (-8.0 sen), and Westports Holdings (-6.0 sen).

• Asian stockmarkets closed lower - led by the slightly bearish sentiment on the U.S. stockmarkets on Thursday’s close. Japanese equities pared the day’s gains, as the Nikkei fell 0.6%, dragged down by export-related stocks amid a stronger Yen. The Shanghai Composite index retreated 0.9%, while the Hang Seng (- 0.3%) index declined to 24,033.7 points. The majority of the ASEAN stockmarkets ended in the red.

• Wall Street closed on a positive note to end the week as investors banked on Donald Trump’s tax-reform promises and business friendly policies. The Dow (+0.02%) was almost unchanged, as gains in the telecommunication services sector offset losses in healthcare-related companies. The Nasdaq advanced 0.4%, while the S&P 500 gained 0.2% - led by buying-interest in Kraft Heinz (+10.7%) after the group made a US$143.0 bln offer for Unilever, although the offer was flatly rejected.

• European equities ended mostly lower as investors digested economic data and more corporate earnings announcements. The FTSE rose 0.3%, buoyed by gains in the consumer staples (+2.9%) and healthcare (+1.3%) sectors. The DAX flatlined, while the CAC shed 0.7% ahead of the Presidential election in France.

The Day Ahead

• We continue to think that the mixed market environment will prevail on Bursa Malaysia over the near term as investors await for President Trump’s tax cut details. At the same time, the uptrend in many global indices is also showing signs of strain and their near term upsides may also be limited; which is likely to permeate to Malaysian stocks.

• Under the prevailing environment, the FBM KLCI is likely to remain rangebound, lingering between the 1,700-1,710 levels for the time being. Still, we think market interest is likely to decent as the general market environment is still largely on the positive side and this will see market players continuing their rotational plays and switch to laggards, particularly among the lower liners and broader market shares.

Company Update

• Protasco Bhd’s 51.0%-owned subsidiary, Empayar Indera Sdn Bhd has been awarded a contract by the state government of Perak for both routine and periodic maintenance works for agricultural roads in the state for a total contract sum of RM90.1 mln. The contract duration is two years and shall end on 19th February 2019.

Comments

• With the incorporation of the aforementioned project, Protasco’s outstanding concession orderbook now stands at approximately RM4.50 bln to provide earnings visibility until 2026. Similar with the previous construction contracts secured, we expect the project to command an EBITDA margin of 13%- 15%.

• Given that the concession contract falls within our orderbook replenishment rate of RM200.0 mln for 2017, we make no changes to our earnings forecast and we maintain our BUY recommendation on Protasco with an unchanged target price RM1.75.

• 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 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 over the next two years

COMPANY BRIEFS

• DRB-Hicom Bhd has entered into a share sale agreement with MRCB Engineering Sdn Bhd (MESB), a wholly owned subsidiary of Malaysian Resources Corp Bhd for the acquisition of a 51.0% stake in Dekad Kaliber Sdn Bhd (DKSB) for a total cash consideration of RM7.0 mln. Upon the completion of the acquisition, DRBHicom’s effective equity interest in DKSB will be increased to 100.0%.

• DKSB is principally involved in the provision of engineering and construction services. It is the only subcontractor appointed by Zelan Teratai for the development of the integrated, custom, quarantine and security (ICQS) complex located in Bukit Kayu Hitam, Kedah. (The Star Online)

• Choo Bee Metal Industries Bhd’s 4Q2016 net profit surged 9.8x Y.o.Y to RM7.5 mln on the back of improved average selling price. Revenue for the quarter, however, declined 6.0% Y.o.Y to RM94.1 mln.

• For 2016, cumulative net profit jumped 316.8% Y.o.Y to RM24.7 mln. Revenue for the year, however, fell 19.9% Y.o.Y to RM369.6 mln. (The Edge Daily)

• CB Industrial Product Holding Bhd (CBIP) has bagged two contracts totalling RM67.0 mln from PT Lifere Agro Kapuas, a subsidiary of United Malacca Bhd, for imports of materials and equipment as well as works involving the construction of a new palm oil mill in Kalimantan, Indonesia. (The Edge Daily)

• Amcorp Properties Bhd’s 3QFY17 net profit fell 24.8% Y.o.Y to RM4.0 mln on higher finance costs and taxation. Revenue for the quarter declined 4.5% Y.o.Y to RM44.5 mln.

• For 9MFY17, cumulative net profit slumped 86.9% Y.o.Y to RM10.3 mln. Revenue for the period, however, added 15.7% Y.o.Y to RM141.3 mln. (The Edge Daily)

• Loss-making Sterling Progress Bhd is venturing into the hotel management business as a means to secure alternative revenue streams and to reduce dependency on its ICT business. The company is buying the business rights to the brand of T+ Hotel and Time Capsule Hotel for RM3.5 mln from Tandop Hotel Sdn Bhd, which is also providing Sterling Progress a profit guarantee of not less than RM800,000 per year for five financial years from 2018 to 2022. (The Edge Daily)

• Pintaras Jaya Bhd’s 2QFY17 net profit jumped 347.0% Y.o.Y to RM11.3 mln due largely to a significant improvement in contribution by its construction division and higher investment income. Revenue for the quarter increased 91.5% Y.o.Y to RM59.8 mln. For 1HFY17, cumulative net profit gained 165.1% Y.o.Y to RM24.5 mln. Revenue for the period climbed 78.4% Y.o.Y to RM119.5 mln. (The Edge Daily)

• Sumatec Resources Bhd has proposed to issue up to 800.0 mln shares to its contractors who will be appointed to assist in its petroleum operations by providing specialised services, materials and equipment.

• Sumatec has also proposed a renounceable 1-for-2 rights issue of up to 3.23 bln shares, together with up to 3.23 bln warrants at an indicative issue price of 10 sen per rights share, on the basis of one rights share-for-every two existing shares in Sumatec, held together with one warrant-for-every one rights share subscribed.

• Sumatec intends to produce LPG from the 100.0 mln standard cubic feet per day of natural gas supplied from the akushechnoye oil and gas field in Kazakhstan.

• The company foresees the Kazakhstan field projects to generate an overall return of 20.0% per annum. Sumatec will implement the corporate proposals in stages, with the cash call proposals to be implemented in the first phase that will raise a total of RM400 mln and LPG production in the second. (The Edge Daily)  

Source: Mplus Research - 20 Feb 2017