• The FBM KLCI finished 0.2% lower, mainly due to profit-taking activities on selected heavyweights amid speculations of a higher interest rate in the coming months. Majority of the lower liners declined, with the exception of the FBM Small Cap (+0.1%). The broader market, meanwhile finished mostly in green.

• Market breadth turned tepid as losers outpaced advancers on a ratio of 555-to- 328 stocks. Traded volume however, was 3.9% higher at 2.79 bln shares, on the back of profit-taking activities amid fresh concerns of an interest rate hike in March.

• Key heavyweights which declined yesterday include Axiata Group (-27.0 sen), Misc Bhd (-6.0 sen) and IHH Healthcare (-5.0 sen). Meanwhile, Hong Leong Group subsidiaries like Hong Leong Bank and Hong Leong Financial Group fell 4.0 sen each. Other underperformers were Cycle & Carriage Bintang (-21.0 sen), KESM Industries (- 21.0 sen), Apex Healthcare (-20.0 sen), Rapid Synergy (-20.0 sen) and Pharmaniaga (-15.0 sen),

• On the other hand, Petron Malaysia Refining & Marketing (+RM1.38), Amway (+26.0 sen), Genting Plantations (+22.0 sen), Lafarge Malaysia (+21.0) and Shell Refining (+20.0 sen) led the broader market higher while, key-index constituents - BAT (+30.0 sen), Genting (+14.0 sen), Kuala Lumpur Kepong (+10.0 sen), Petronas Dagangan (+8.0 sen) and Genting Malaysia (+7.0 sen) rallied.

• Asian stockmarkets slipped into the negative territory yesterday, after US Federal Reserve Chairwoman Janet Yellen signaled a potential interest rate hike in the coming months. The Nikkei finished almost unchanged, amid a stronger Yen, while the Hang Seng (- 0.3%) closed at 3,299.3 points. Similarly, the Shanghai Composite index fell 0.3%, dragged by weakness in building materials shares. ASEAN stockmarkets closed mostly lower on Thursday.

• Wall Street rebounded from earlier losses to close at new record highs, amid growing concerns of the uncertainty surrounding Donald Trump’s fiscal stimulus plans. The Dow (+0.2%) ended positively for the tenth-straight day as healthcare-related stocks like Johnson & Johnson (+1.8%) and Pfizer (+1.4%) rallied. The S&P 500 (+0.04%) was flattish, while the Nasdaq (-0.4%) bucked the general sentiment to close in red.

• European equities retreated on Thursday, as investors turned wary over a possible US interest rate hike in the near term. The FTSE fell 0.4% as miners and banking giants lost ground. Meanwhile, the DAX traded 0.4% lower to end at 11,947.8 points and the CAC weakened by 0.1%, dragged down by losses in the basic materials, utilities and financials sectors.

The Day Ahead

• The market’s uptrend since late December 2016 appears to have run out of steam amid the toppish market conditions. We think that profit taking activities are bound to take precedence amid the lack of fresh local catalyst.

• Despite the downturn in market breadth yesterday, trading volumes remain healthy at current juncture implying market participants are still in search for higher yield assets classes. Hence, the rotational play amongst the lower liners could elongate over the near term.

• With the emergence of profit taking activities, we think that the local bourse could drift lower towards the key support of 1,700 level. Meanwhile, any recovery is likely to be capped at the 1,710 level.

Company Update

• Engtex Group Bhd’s 4Q2016 net profit jumped 13.6x Y.o.Y to RM13.7 mln, lifted the higher efficiency of raw materials utilisation sourced from both locally and abroad coupled with higher contribution from its property development project in Kepong. Revenue for the quarter, however, contracted 10.4% Y.o.Y to RM264.1 mln, dragged down by the lower demand in certain metal and steel products.

• For 2016, cumulative net profit climbed 50.2% Y.o.Y to RM60.6 mln. Revenue for the year, however, declined 7.5% Y.o.Y to RM1.07 bln.

• Both the reported earnings and revenue came within our estimates as its net profit accounted to 98.1% of our full year net profit forecast of RM61.8 mln, while its revenue amounted to 103.2% of our revenue forecast of RM1.04 bln for 2016.

Comments

• As the reported earnings within our estimates, we leave our earnings forecast unchanged and we maintain our HOLD recommendation on Engtex with an unchanged target price at RM1.30.

• Our target price is derived from ascribing a target PER of 8.0x to our fully diluted 2017 forecast earnings of its manufacturing and wholesale and distribution businesses, in line with its historical PER. Its property development segment’s valuation, meanwhile, remains unchanged at 0.6x its BV due to its relatively small-scale property development projects.

COMPANY BRIEFS

• Axiata Group Bhd's 4Q2016 net loss stood at RM309.5 mln, vs. a net profit of RM467.2 mln in the previous corresponding quarter, mainly due to a signficant increase in foreign exchange (forex) loss and net financing cost. Revenue for the quarter, however, added 8.0% Y.o.Y to RM5.79 bln.

• For 2016, cumulative net profit sank 80.3% Y.o.Y to RM504.3 mln. Revenue for the year, however, added 8.5% Y.o.Y to RM21.57 bln. A dividend of three sen per share was declared. (The Star Online)

• Malayan Banking Bhd’s (Maybank) 4Q2016 net profit climbed 42.9% Y.o.Y to RM2.36 on higher net interest income and Islamic banking income. Revenue for the quarter increased 1.7% Y.o.Y to RM11.24 bln.

• For 2016, cumulative net profit decliend 1.3% Y.o.Y to RM6.74 bln. Revenue for the period, however, added 10.1% Y.o.Y to RM44.65 bln. A final single-tier dividend of 32 sen single-tier was declared. (The Star Online)

• Genting Bhd's 4Q2016 net profit surged 237.4% Y.o.Y to RM1.14 bln, due to the disposal of Genting HK. Revenue for the quarter, however, slipped 3.4% Y.o.Y to RM4.75 bln.

• For 2016, cumulative net profit jumped 54.6% Y.o.Y to RM2.15bln. Revenue for the year gained 1.4% Y.o.Y to RM18.36 bln. A final single-tier dividend of 6.0 sen per share together with a special singletier dividend of 6.5 sen per share was declared. (The Star Online)

• Pos Malaysia Bhd’s 3QFY17 net profit soared 54.7% Y.o.Y to RM34.8 mln, on higher contribution from the courier segment. Revenue for the quarter climbed 28.5% Y.o.Y to RM635.7 mln.

• For 9MFY17, cumulative net profit gained 50.6% Y.o.Y to RM73.4 mln. Revenue for the period expanded 12.7% Y.o.Y to RM1.40 bln. (The Edge Daily)

• IHH Healthcare Bhd’s 4Q2016 slipped into a net loss of RM42.5 mln vs. a net profit of RM415.8 mln in the previous corresponding quarter, dragged down by a massive foreign exchange loss of RM224.5 mln coupled with higher doubtful debts expenses of RM49.0 mln.

• For 2016, cumulative net profit declined 34.4% Y.o.Y to RM612.4 mln. Revenue for the year, however, rose 18.5% Y.o.Y to RM10.02 bln. A first and final single tier dividend of three sen per share was declared. (The Edge Daily)

• AirAsia Bhd’s 4Q2016 net profit declined 16.0% Y.o.Y to RM465.3 mln, due to a decline in aircraft operating lease income. Revenue for the quarter slipped 10.7% Y.o.Y to RM1.94 bln.

• For 2016, cumulative net profit surged 3.7x Y.o.Y to RM2.04 bln. Revenue for the year gained 9.9% Y.o.Y to RM6.92 bln. (The Edge Daily)  

Source: Mplus Research - 24 Feb 2017