• The FBM KLCI finished 0.1% higher on the back of the positive sentiment spilled over from regional as well as global stockmarkets. The lower liners rebounded as both the FBM Small Cap and the FBM Fledgling indices closed 0.5% higher, although the FBM Ace (-0.1%) declined slightly. The broader market, meanwhile finished mostly in the positive territory.

• Market breadth was positive as winners outrun losers on a ratio of 474-to-389 stocks. Traded volumes, however retraced 7.1% to 2.69 bln shares amid the lack of fresh trading catalysts.

• Key index constituents which advanced on Wednesday’s close were Hong Leong Financial Group (+22.0 sen), Genting Malaysia (+20.0 sen), Hong Leong Bank (+10.0 sen), IOI Corporation (+9.0 sen) and MISC Bhd (+9.0 sen). Broader market advancers, meanwhile include Malaysian Pacific Industries (+41.0 sen), United U-Li Corporation (+22.0 sen), Sam Engineering & Equipment (+21.0 sen), Heineken Malaysia (+18.0 sen) and Panasonic Manufacturing Malaysia (+16.0 sen),

• Meanwhile, Carlsberg (-34.0 sen), Dutch Lady (-32.0 sen), Aeon Credit Service (- 22.0 sen), Allianz Malaysia (-18.0) and DKSH Holdings (-17.0 sen) were among the big losers. Blue chip decliners include RHB Bank (-19.0 sen), Tenaga Nasional (- 6.0 sen), Hong Leong Bank (-10.0 sen), Axiata (-5.0 sen) and IHH Healthcare (-4.0 sen). Kuala Lumpur Kepong fell 4.0 sen on the back of lower crude palm oil prices.

• Tracking the bullish sentiment on key U.S. and U.K. indices overnight, Asian equities finished mostly higher as investors await for further details on Donald Trump’s tax-reform plans. The Nikkei flatlined, however, as losses in the property sector offset gains in energy shares. The Hang Seng and the Shanghai Composite index, meanwhile, rallied 1.2% and 0.2% respectively on fresh institutional buying, as with the majority of ASEAN stockmarkets that closed in the green.

• US stockmarkets ended broadly in the negative territory following speculation of an interest rate hike in the near future. The Dow rose 0.2%, boosted by El du Pont (+3.4%) after it was reported that the EU antitrust regulators is set to approve Du Pont’s merger with Dow Chemical. The S&P 500 and the Nasdaq, however, lost 0.1% each – led by profit-taking activities after hitting new highs in the recent rally.

• Major European benchmark indices ended higher as investors digested a string of corporate earnings. The FTSE gained 0.4%, buoyed by Lloyds Banking Group (+3.5%) after the group posted its highest full-year profit in over a decade. Meanwhile, the DAX rose 0.3% to close slightly below the 12,000 psychological level and the CAC (+0.2%) pared earlier losses to close in the green.

The Day Ahead

• While the general market sentiments remain mostly positive, the rotational plays among the index heavyweights are keeping the key index in a tight trading range. We think that this sideway trend is likely to persist as the bouts of profit taking and rotational plays looks to continue as market participants search for new leads.

• Market breadth and depth remains encouraging for now and this will allow for the positive market environment to sustain, particularly among the lower liners and broader market shares which are the domain of retail players.

• With the prevailing bouts of choppiness, we think the key index will likely trend within the 1,700 and 1,710 over the near term.

Company Update

• Oldtown Bhd‘s 3QFY17 net profit jumped 119.3% Y.o.Y to RM24.4 mln, from RM11.1 mln in the previous corresponding period, in-tandem with the outperformance in its FMCG segment on higher sales, forex gains, as well as lower selling expenses. Revenue for the quarter also expanded 13.3% Y.o.Y to RM115.8 mln against RM102.2 mln in 3QFY16.

• Cumulatively, the group’s 9MFY17 net profit soared 50.0% Y.o.Y to RM50.9mln, from RM33.9 mln last year, on the back of stronger export sales, while revenue rose 10.2% Y.o.Y from RM288.9 mln in 9MFY16, to RM318.2 mln.

• The reported earnings came in above our expectations as it accounts to 91.9% our full year estimated net profit of RM55.4 mln, while the reported revenue came within our expectations, accounting to 74.0% of our FY17 revenue forecast of RM430.3mln. The variance in its bottomline is mainly due higher margins, on the back of stronger sales revenue from its export market and forex gains, in view of the sharp depreciation of the Ringgit in the quarter under review.

Comments

• Although the reported earnings came in above our estimates, we leave our earnings estimates unchanged for now, pending further details in an analyst briefing later. We reiterate our HOLD call on Oldtown with an unchanged target price of RM2.10.

• Our target price is derived from ascribing a target PER of 16.5x to our FY18 net EPS of 12.9 sen. The targeted PER is based on a discount to the 21x-25x average PER of consumer products market leaders like Nestle and Dutch Lady due to Oldtown’s smaller market capitalisation.

• Econpile Holdings Bhd’s 2QFY17 net profit gained 28.9% Y.o.Y to RM21.4 mln, on the back of advanced billings from several existing projects, coupled with recognition from newly secured projects. Revenue for the quarter grew 33.7% Y.o.Y to RM147.9 mln.

• For 1HFY17, cumulative net profit added 21.7% Y.o.Y to RM37.8 mln. Revenue for the period improved 23.8% Y.o.Y to RM262.0 mln.

• However, both the reported earnings and revenue came in at the low end of our expectations, accounting to 47.8% and 47.0% of our previous FY17 estimated net profit and revenue of RM79.0 mln and RM542.0 mln respectively.

• Separately, Econpile has secured a foundation works contract on the Pavilion Damansara Heights development worth RM570.4 mln – the single largest piling contract secured by the group in its 30 years of operational history. The contract is for a duration of 28 months.

Comments

• With the incorporation of aforementioned contract, Econpile’s orderbook replenishment now stands at RM1.05 bln (significantly above FY16 orderbook replenishment of RM627.3 mln) and exceeds our orderbook replenishment assumption of RM700.0 mln of FY17. The award of the new project has also ramped-up its total outstanding construction orderbook to an all-time high of approximately RM1.42 bln, implying an orderbook-to-cover ratio of 3.1x against FY16 revenue of RM462.1 mln, which will provide earnings visibility over the next 2-3 years.

• Despite the reported earnings coming in below our expectations, we raised our earnings forecast for FY17 and FY18 by 14.0% and 22.3% to RM90.0 mln and RM106.4 mln respectively to reflect the stronger-than-expected orderbook replenishment. Consequently we have raised our orderbook replenishment assumption to RM1.20 bln for FY17.

• We upgrade Econpile to a BUY recommendation (from Hold) with a higher target price of RM2.35 (from RM2.05). Our target price is derived from ascribing an unchanged target PER of 13.0x to its revised FY17 EPS of 17.9 sen, which is in line with its peers with similar market capitalisation.

Company Briefs

• AirAsia X Bhd’s 4Q2016 net profit slumped 80.2% Y.o.Y to RM39.0 mln, dragged down by the volatile foreign exchange markets coupled with lower passenger load factor. Revenue for the quarter, however, rose 39.1% Y.o.Y to RM1.17 bln.

• For 2016, cumulative net profit stood at RM230.5 mln vs. a net loss of RM349.2 mln reported in the previous year. Revenue for the year added 31.0% Y.o.Y to RM4.01 bln. (The Star Online)

• Genting Plantations Bhd’s 4Q2016 net profit jumped 239.9% Y.o.Y to RM201.9 mln, boosted by higher palm products’ selling prices. Revenue for the quarter advanced 21.0% Y.o.Y to RM513.4 mln.

• For 2016, cumulative net profit surged 93.8% Y.o.Y to RM367.5 mln. Revenue for the year added 7.6% Y.o.Y to RM1.48 bln. A final single-tier dividend of 8.0 sen per share, plus special dividend of 11.0 sen per share was declared. (The Star Online)

• MBM Resources Bhd’s 4Q2016 net profit sank 68.0% Y.o.Y to RM3.5 mln, due to a one-off impairment of RM30.3 mln. Revenue for the quarter, however, rose 2.3% Y.o.Y to RM447.7 mln.

• For 2016, cumulative net profit declined 26.2% Y.o.Y to RM62.0 mln. Revenue for the year decreased 7.7% Y.o.Y to RM1.68 bln. (The Edge Daily)

• Tadmax Resources Bhd saw a total of 15.0 mln of its shares — representing a 3.1% equity stake, traded off market on 22nd February 2017. The shares were crossed at 41 sen apiece for a total of RM6.2 mln. It is unclear as to who the parties involved in the exchange were. (The Edge Daily)

• Lafarge Malaysia Bhd’s 4Q2016 net profit shrank 24.0% Y.o.Y to RM33.9 mln, impacted by lower cement sales, a one-off loss from disposal of its Ipohbased subsidiary, higher loss on disposal and write-off of assets, higher finance cost and higher share of losses in an associate. Revenue for the quarter decreased 11.4% Y.o.Y to RM636.4 mln.

• For 2016, cumulative net profit sank 69.6% Y.o.Y to RM76.7 mln. Revenue for the year declined 7.2% Y.o.Y to RM2.55 bln. (The Edge Daily)

• Cycle and Carriage Bintang Bhd’s 4Q2016 net profit slumped 84.3% Y.o.Y to RM10.2 mln due mainly to lower contribution from its Mercedes trading operations, which faced severe margin pressure. Revenue for the quarter slid 5.0% Y.o.Y to RM368.2 mln.

• For 2016, cumulative net profit slipped 69.6% Y.o.Y to RM76.7 mln. Revenue for the year fell 7.2% Y.o.Y to RM2.55 bln. A final dividend of 5.0 sen per share, payable on 24th May 2017, was declared. (The Edge Daily)

• Petron Malaysia Refining and Marketing Bhd’s net profit soared 593.5% Y.o.Y to RM112.6 mln on growth in its sales volume and higher margin. Revenue for the quarter rose 21.8% Y.o.Y to RM2.29 bln.

• For 2016, cumulative net profit grew 7.7% Y.o.Y to RM237.6 mln. Revenue for the quarter, however, fell 6.8% Y.o.Y to RM7.60 bln. (The Edge Daily)

• Telekom Malaysia Bhd’s (TM) 4Q2016 net profit fell 19.8% Y.o.Y to RM154.3 mln, due to foreign exchange losses from group borrowings arising from the weakening Ringgit against the U.S. Dollar, despite recognition of investment tax allowances granted during the period. Revenue for the quarter rose 1.9% Y.o.Y to RM3.24 bln.

• For 2016, however, cumulative net profit grew 10.8% Y.o.Y to RM776.0 mln. Revenue for the year gained 2.9% Y.o.Y to RM12.1 bln. A second interim single-tier 12.2 sen per share, payable on 24th March 2017, was declared. (The Edge Daily)  

Source: Mplus Research - 23 Feb 2017