• After enduring a choppy trading session and retesting the 1,700 psychological level, the FBM KLCI (-0.3%) erased all its intraday gains to extend its losses for the third consecutive session. The lower liners – the FBM Small Cap (-1.2%), FBM Fledgling (-0.7%) and FBM ACE (-1.9%), all took a beating, while the Plantations (+0.1%) sector outperformed in the negative broader market.

• Market breadth stayed negative as losers outpaced advancers on a ratio of 643-to- 296 stocks. Traded volume fell 3.7% to 2.90 bln shares on profit taking activities.

• Key losers on the big board include BAT (- 80.0 sen), Petronas Gas (-26.0 sen), Hong Leong Financial Group (-16.0 sen) CIMB (- 14.0 sen) and Sime Darby (-13.0 sen). Amongst the biggest gainers on the broader market include consumer products stocks like Kawan Food (-37.0 sen), Dutch Lady (-30.0 sen) and IQ Group (-11.0 sen), while Far East and Lafarge fell 35.0 sen and 25.0 sen respectively.

• On the flipside, notable gainers on the broader market were Panasonic (+28.0 sen), Petron Malaysia (+16.0 sen), Warisan TC Holdings (+16.0 sen), Malaysia Airport Holdings (+15.0 sen), and Cahya Mata Sarawak (+14.0 sen). Meanwhile, PPB Group (+22.0 sen), Petronas Dagangan (+16.0 sen), KLK (+12.0 sen), Axiata (+7.0 sen) and Genting (+6.0 sen) topped the FBM KLCI advancers list.

• Asian benchmark indices retreated as the Nikkei (-0.9%) extended its losses, pressured by the weakness in financial and export stocks. The Hang Seng Index (-0.2%) also closed lower for the third straight session, while the Shanghai Composite fell 0.8% on uncertainties over U.S’ President Donald Trump’s upcoming speech on his economic policies. ASEAN stockmarkets, meanwhile, closed mostly negative.

• U.S. stockmarkets edged higher overnight as the Dow (+0.1%) extended its winning streak for the 12th consecutive session ahead of President Donald Trump speech on infrastructure spending. On the broader market, the S&P 500 added 0.1%, led by gains in the energy sector (+0.9%).

• European benchmark indices also closed mostly positive as the FTSE and DAX added 0.1% and 0.2% each as the former was driven up by gains in commodityrelated shares which offset the weakness in insurance firms. The CAC, however, closed flat.

The Day Ahead

• There remains no change in our near term view and we believe the FBM KLCI will continue on its consolidation trend amid the lack of fresh compelling leads. Despite the potential for more consolidation over the near term, however, the underlying market sentiments remain positive for now, judging by the healthy traded volumes which are a critical gauge of the market’s strength.

• Therefore, we see the rotational plays continuing for now, particularly among the lower liners and broader market shares, as investors lock in profits on their winning positions and switch to laggards.

• The 1,700 points level remains the main hurdle for now, while the major support is seen at 1,680 level. In the interim, the 1,690 level will serve as the intermediate support.

Company Update

• Barakah Offshore Petroluem Bhd’s 4Q2016 net profit sank 71.9% Y.o.Y to RM4.1 mln, dragged down by the lower margins from projects executions, coupled with higher depreciation charges amid the adjustment of fixed assets for overseas projects. Revenue for the quarter, however, added 28.9% Y.o.Y to RM215.1 mln.

• For 2016, cumulative net profit slipped 22.9% Y.o.Y to RM14.5 mln. Revenue for the year, however, added 5.1% Y.o.Y to RM622.6 mln. The reported earnings came below our estimates, accounting to only 57.8% of our full year net profit forecast of RM25.0 mln, while the reported revenue came within our expectations, accounting to 101.2% of our full year estimated revenue of RM615.4 mln.

• The variance in earnings is mainly due to RM8.3 mln foreign exchange loss from its KL101 U.S Dollar denominated loan, tax credit from over-provision in 2015 and ESOS scheme. Excluding the abovementioned items, its core net profit at RM24.5 mln would have made up to 98.1% of our estimated full year net profit of RM25.0 mln.

Comments

• With the reported earnings coming below our estimates, we slashed our net earnings forecast by 28.4% and 12.1% to RM25.5 mln and RM37.3 mln for 2017 and 2018 respectively to reflect the lower work billings that could emanate from the slower work flow. Nevertheless, we maintain our HOLD recommendation with an unchanged target price of RM0.70 after we rolled over our valuations to 2018.

• Our target price is arrived by ascribing an unchanged target PER of 15.5x to our rolled-over 2018 fully diluted EPS estimate of 4.5 sen. We think that earnings should recover further over the foreseeable future, premised on a slew of recently secured contracts that will be recognised progressively over the coming months coupled with the stabilisation of crude oil prices that could see some on its projects accelerating.

• OCK Group Bhd’s 4Q2016 net profit declined 10.7% Y.o.Y to RM11.2 mln on higher depreciation expenses coupled with expenses incurred for the acquisition of South East Asia Telecommunication Holdings Pte Ltd (SEATH) of RM2.9 mln. Revenue for the quarter, however, gained 6.6% Y.o.Y to RM112.7 mln.

• For 2016, cumulative net profit improved marginally by 0.8% Y.o.Y to RM25.8 mln. Revenue for the year climbed 28.9% Y.o.Y to RM407.1 mln. The reported earnings fell short of our estimates as it accounted to 90.5% of our full year estimated net profit of RM28.5 mln, while the reported revenue came in within our estimated revenue of RM404.8 mln.

Comments

• Although the reported earnings came in below our estimates, we leave our earnings estimates unchanged for now, pending further details in an analyst briefing later. We maintain our BUY recommendation on OCK with an unchanged target price of RM0.95.

• We adopted a sum-of-parts (SOP) approach to arrive at our target price 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.

• Protasco Bhd’s 4Q2016 net profit slumped 88.5% Y.o.Y to RM2.4 mln, due to lower contribution from Phase 1 of PPA1M project which is at tail-end of completion, non-renewal of two state maintenance contract and lower recognition of property development segment after Phase 1 off De Centrum is fully completed. Revenue for the quarter declined 44.3% Y.o.Y to RM262.9 mln.

• For 2016, cumulative net profit fell 33.5% Y.o.Y to RM44.4 mln. Revenue for the period year was lower by 16.6% Y.o.Y to RM1.09 bln. The reported earnings came below our expectations, accounting to 76.8% of our full year net profit forecast of RM57.8 mln. The reported revenue, meanwhile, amounted to 96.7% of our previous revenue forecast of RM1.13 bln.

Comments

• While the reported earnings came in below our forecast, we leave our earnings estimates unchanged for now, pending further details in an analyst briefing later. Hence, we keep our BUY call on Protasco with an unchanged target price of RM1.75 for now.

• Our target price is derived by assigning and unchanged target PER of 11.0x to its construction earnings, a target PER of 8.0x (unchanged) 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. ? Kimlun Corporation Bhd’s 4Q2016 net profit expanded 13.0% Y.o.Y to RM21.2 mln, mainly due to execution of higher margin projects, lower raw materials and fuel cost and lower depreciation charges. Revenue for the rose marginally by 1.5% Y.o.Y to RM235.4 mln.

• For 2016, cumulative net profit added 15.9% Y.o.Y to RM81.9 mln. Revenue for the year, however, contracted 10.7% Y.o.Y to RM940.7 mln. Despite that, the reported earnings came above our expectations, accounting to 112.9% of our full year estimated net profit of RM72.6 mln. Meanwhile, the reported revenue came within expectation, accounting to 95.6% of our full year revenue forecast of RM984.2 mln.

Comments

• As the reported earnings topped our forecast, we raised our earnings forecast by 11.0% and 15.8% to RM84.4 mln and RM89.5 mln in 2017 and 2018 respectively to reflect the stronger construction contract margins coupled with the lower depreciation charges.

• Following its’ earnings revision, we reiterate our BUY recommendation on Kimlun with a higher target price of RM2.55 (from RM2.35).

• Our target price is derived from ascribing an unchanged target PER of 11.0x to its revised 2017 construction earnings and a PER of 6.0x to its revised manufacturing earnings, while its property development segment’s valuation remain unchanged at 0.6x its BV due to its relatively small-scale development projects.

• Mitrajaya Holdings Bhd’s 4Q2016 net profit jumped 76.5% Y.o.Y to RM42.8 mln, on the back of higher contribution from the property development segment. Revenue for the quarter gained 10.0% Y.o.Y to RM271.7 mln. For 2016, cumulative net profit added 36.1% Y.o.Y to RM117.8 mln. Revenue for the year grew 11.9% Y.o.Y to RM964.1 mln.

• The reported earnings came in above expectations as it accounts to 113.8% of our full year estimated net profit of RM103.6 mln. The reported revenue was within our forecast, accounting to 99.1% of our full year estimated revenue of RM972.5 mln.

Comments

• We lift our earnings forecast by 12.8% and 12.1% to RM122.7 mln and RM140.3 mln for 2017 and 2018 respectively after adjusting for higher contribution from its property development segment, coupled with a slight reduction in its effective tax rate to 25.0% (from 26.0%). Consequently, we maintain our BUY recommendation on Mitrajaya with a higher target price of RM1.95 (from RM1.90).

• Our target price is arrived from ascribing an unchanged target PER of 11.0x to its fully diluted 2017 (unchanged) construction earnings, while the value of its property development units, both local and overseas, are valued at 0.8x (unchanged) their respective book values.

• AWC Bhd’s 2QFY17 net profit climbed 39.3% Y.o.Y to RM5.2 mln, from RM3.7 mln previously, mainly due to improved performance from its facilities and environment divisions following the commencement of several new projects, as well as renewal of its government concession contract. Revenue also jumped 25.7% Y.o.Y to RM75.6 mln vs. RM60.2 mln a year ago. The group has also proposed a 1.0 sen interim dividend, which is payable on the 5th April, 2017. ? Cumulatively, the group’s 1HFY17 net profit more than doubled to RM10.7 mln, from RM5.0 mln in the previous corresponding period – led by strong growth in its topline on the back of the aforementioned reasons, in addition to the better performance from AWC’s plumbing and air-conditioning business. Revenue expanded 45.7% Y.o.Y to RM142.8 mln from RM98.0 mln last year.

• AWC’s reported earnings came within our expectations as it accounts to 47.9% of our full-year estimated net profit of RM22.2 mln, while the reported revenue amounts to 50.6% of our estimated FY17 revenue of RM282.2 mln.

Comments

• We continue to like AWC for its earnings stability, backed by a healthy mix of consistent cash inflows from its concession contracts, as well as lucrative margins from its waste management and plumbing projects. Going forward, the group’s outstanding orderbook of RM1.15 bln is expected to provide earnings visibility of more than four years.

• As the results are within our estimates, we maintain our BUY recommendation on AWC with an unchanged target price of RM1.10. Our target price is derived from ascribing an unchanged target PER of 13.0x to its FY17 EPS of 8.4 sen, which we think is justified due to its strong earnings growth potential – as reflected in its low PEG of 0.4x in FY17.

Company Briefs

• Sime Darby Bhd's 2QFY17 net profit more than doubled to RM644.0 mln vs. RM285.0 mln last year – helped by stronger crude palm oil prices and improved production of fresh fruit bunches. Revenue rose 4.3% Y.o.Y to RM12.34 bln, from RM11.83 bln in 2QFY16. The group has also proposed a 6.0 sen dividend, payable on 5th May, 2017.

• Cumulative 1HFY17 net profit jumped 78.5% Y.o.Y to RM1.09 bln, from RM609.0 mln last year - on the back of stronger performance from its plantations, motors and property segments. Revenue was also up marginally by 2.0% to RM22.44 bln.

• Going forward, the group plans to float its property and plantation divisions separately on Bursa Malaysia via share distributions to its shareholders. There will not be new shares issued for sale in the listing of the two divisions, which is expected to take place early next year. (The Star Online)

• Sunway Bhd posted a 13.0% Y.o.Y fall in its 4Q2016 net profit to RM185.8 mln, from RM214.7 mln, attributed to lower contributions from local construction projects. Quarterly revenue also slid to RM1.36 bln against RM1.40 bln.

• Full year net profit dropped 20.0% Y.o.Y to RM585.9 mln, from RM732.5 mln a year earlier, despite revenue growing by 6.2% Y.o.Y to RM4.73 bln, from RM4.45 bln.

• The group’s property development segment's unbilled sales stood at RM1.50 bln as at 31st December, 2016, which will provide about 1-2 years of earnings visibility for the division. (The Edge Daily)

• Destini Bhd's 4Q2016 net profit gained 26.0% Y.o.Y to RM12.0 mln against RM9.5 mln in 4Q2015, alongside a 27.0% Y.o.Y increase in revenue to RM115.4 mln – largely due to higher demand for its maintenance, repair and overhaul and shipbuilding services.

• For its full year, the group's net profit surged 57.0% Y.o.Y to RM33.0 mln, from RM21.1 mln in 2015, while revenue rose 31.0% Y.o.Y to RM354.4 mln, from RM270.1 mln in the same period last year. (The Edge Daily)

• Titijaya Land Bhd, which is buying a company that owns three plots of leasehold land in Sabah measuring 75.4 acres for RM70.9 mln, has partnered China Railway Engineering Ltd to jointly develop a mixed-use project on one of the plots.

• The project, with an estimated gross development value of RM575.0 mln, will be built on a 1.8-ac. tract of land on one of the aforementioned plot, located in Kota Kinabalu's city centre.

• The project, which is known as The Shor”, will be 25 stories tall and comprise 561 units with built-ups ranging from 409 sq.ft. to 541 sq.ft., priced from RM453,000. (The Star Online)

• AEON Co (M) Bhd's 4Q2016 net profit slipped 31.0% Y.o.Y to RM26.5 mln, compared to RM38.3 mln in the previous year's corresponding quarter, on the back of higher operating costs, new store expenses and higher interest expense. Revenue, however, was 5.0% Y.o.Y higher at RM1.02 bln, from RM975.7 mln.

• Full-year net profit also declined 40.0% Y.o.Y to RM79.7 mln, from RM133.4 mln last year, mainly due the aforementioned reasons, while revenue increased 5.0% Y.o.Y to RM4.04 bln, from RM3.83 bln in 2015. AEON has also declared an interim single tier dividend of three sen per share. (The Edge Daily)

• UMW Holdings Bhd’s net loss widened to RM1.57 bln in the 4Q2016, from RM284.3 mln a year ago, on persisting losses in its oil and gas businesses. Revenue was also down 27.0% Y.o.Y to RM3.06 bln, from RM4.18 bln in the last corresponding year.

• For the full year, UMW reported a second net loss in a row, amounting to RM1.69 bln vs. RM37.2 mln in 2015, in-tandem with revenue, which plunged 67.0% Y.o.Y to RM10.97 bln, from RM14.44 bln. (The Star Online)

• Malaysian Resources Corp Bhd’s (MRCB) 4Q2016 net profit jumped seven-fold to RM188.1 mln, from RM26.8 mln in the corresponding quarter a year ago, attributed to gains on the disposal of assets.

• The group recognised a gain of RM144.9 mln from the sale of Menara Shell and RM56.1 mln from the sale of a leasehold land to Mass Rapid Transit Corp Sdn Bhd during the quarter under review. Revenue also swelled by 166.0% Y.o.Y to RM1.03 bln, from RM388.2 mln previously. MRCB has also declared a first and final single tier dividend of 2.75 sen per share.

• Full year net profit, however, fell 19.0% Y.o.Y to RM267.4 mln vs. RM330.4 mln in 2015, despite the 442.0% Y.o.Y gain in revenue to RM2.41 bln, from RM1.70 bln last year. (The Star Online)

• Kerjaya Prospek Group Bhd has reported a fivefold increase in its 4Q2016 net profit to RM26.2 mln, from RM4.8 mln, following the consolidation of results from two subsidiaries acquired in January 2016. Quarterly revenue also expanded by more than 11 times at RM235.5 mln, from RM18.6 mln in the 4Q2015.

• For the full year, net profit jumped by 519.0% Y.o.Y to RM100.0 mln, from RM16.1 mln in the last corresponding year, while revenue stood at RM805.4 mln vs. RM79.0 mln a year ago. (The Star Online)  

Source: Mplus Research - 28 Feb 2017