• After hovering in the negative territory for most of the trading session, the FBM KLCI (-0.2%) retreated from its highest level since June 2015 yesterday. The lower liners – the FBM Small Cap (+0.5%), FBM Fledgling (+0.3%) and FBM ACE (+0.7%), however, all extended their gains, while broader market closed mixed.

• Market breadth remained positive as advancers edged decliners on a ratio of 472-to-416 stocks. Traded volume, however, fell 9.2% to 3.08 bln shares on minor profit taking activities.

• Key winners on the big board include Petronas Gas (+20.0 sen), KLCC (+10.0 sen), PPB Group (+8.0 sen), Petronas Dagangan (+6.0 sen) and Genting Malaysia (+4.0 sen). Consumer products stocks like Frasers & Neave (+50.0 sen), Dutch Lady (+40.0 sen) and Ajinomoto (+20.0 sen) topped the broader market advancers list, while Muda Holdings and Pentamaster added 18.0 sen and 12.0 sen respectively.

• Significant decliners on the broader market were Lafarge (-22.0 sen), Batu Kawan (-16.0 sen), Carlsberg (-14.0 sen) and Heineken (-12.0 sen. Bursa Malaysia fell 7.0 sen after the Employees Provident Fund (EPF) ceased to be its substantial shareholder. On the FBM KLCI, BAT (-60.0 sen), KLK (-18.0 sen), Hong Leong Bank (- 18.0 sen), IOI Corporation (-12.0 sen) and CIMB (-8.0 sen) were amongst the biggest decliners.

• Asian benchmark indices closed mostly lower yesterday as the Nikkei (-0.5%) declined for the fourth straight session. The Shanghai Composite fell 0.1%, taking cue from the weakness on Wall Street, but the Hang Seng Index gained 0.4% after recovering all its intraday losses, led by gains in telecommunication shares. ASEAN stockmarkets, meanwhile, closed mixed.

• U.S. stockmarkets closed lower overnight as the Dow (-0.3%) registered its third consecutive losing day after crude oil prices slumped to its lowest level YTD on record U.S. inventory level that rose for the ninth straight week. On the broader market, the S&P 500 fell 0.2%, on weakness in the energy sector (-3.1%).

• European benchmark indices ended mostly higher as the CAC and DAX gained 0.1% and 0.01% respectively as the latter was buoyed by rise in its Industrial Production Data (+2.8% M.o.M) in January 2017. The FTSE, however, fell 0.1% after U.K. delivered its final budget before the government begins Brexit negotiations with the European Union.

The Day Ahead

• We see little change to the immediate market environment and we expect the key index to linger within the 1,720-1,730 levels over the near term as it attempts to build-up a stronger base. However, we also think the mild downside bias could extend as the Malaysian stockmarket is still toppish and profit taking activities could persist for now.

• At the same time, key overseas markets are also in consolidation trends – which could further crimp the buying interest among the index heavyweights after their recent strong gains.

• Despite the increasing choppiness, retail interest on the lower liners and broader market shares are likely to stay elevated amid the continuing rotational play and switching exercise. This will also keep market breadth at a decent level.

Company Update

• Engtex Group Bhd has acquired the remaining 9.0% stake in Engtex Ductile Iron Pipe Industry Sdn Bhd (EDIP) for RM7.5 mln to take full control of the subsidiary's affairs and business direction. The acquisition of EDIP, a ductile iron pipe maker, is from Ultimate Target Sdn Bhd and was funded by internal funds. (The Edge Daily)

Comments

• We are mildly positive on the aforementioned acquisition as it would allow for the full consolidation of EDIP into Engtex Group Bhd’s business. Already, the Ductile Iron pipe’s utilisation rate improved to 35.3% in 2016 (from 32.4% in 2015) whilst its sales tonnage rose 9.7% Y.o.Y.

• We also anticipate the utilisation rate to improve in 2017, premised on the acceleration of contribution from the Selangor pipe replacement programme. The group is also tendering for approximately RM51.0 mln worth of Ductile Iron pipes supply contracts, mainly on the Pan Borneo Highway and other projects in Malaysia.

• We raised our earnings forecast by 1.4% and 1.3% to RM63.8 mln and RM67.0 mln in 2017 and 2018 respectively to reflect the consolidation of EDIP’s earnings. We also maintain our HOLD recommendation on Engtex with an unchanged target price of 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

• Iskandar Waterfront City Bhd (IWC) is planning to merge with its major shareholder, Iskandar Waterfront Holdings Sdn Bhd (IWH) through a onefor-one share swap scheme, following which IWH will take over the latter’s listing status upon completion of the share swap.

• The merger will also entail a proposed asset acquisitions of RM4.1 bln from four parties, including Tan Sri Lim Kang Hoo and Sultan Ibrahim of Johor, through the issuance of new shares priced at RM1.50, and new Redeemable Convertible Preference Shares (RCPS).

• The proposed asset acquisitions will boost the merged entity's revalued net asset value to RM4.50 per share or RM30.0 bln, with 7,367 ac. of landbank, excluding IWH's equity interest in the Bandar Malaysia project where it holds an effective 36.0% stake.

• The proposed asset acquisitions are conditional upon the success of the merger plan. However, the two proposals are not inter-conditional.

• The RCPS can only be converted into IWH shares when the company has generated a cumulative net profit of more than RM1.0 bln post-restructuring exercise. However, IWH can redeem the RCPS at any time without conditions attached. (The Star Online)

• Alam Maritim Resources Bhd was awarded an RM34.0 mln contract to provide offshore construction subcontract work for a floating production, storage and offloading unit called Perisai Kamelia.

• The contract includes demobilisation works worth RM34.0 mln with an additional scope for water treatment at provisional sum of RM1.0 mln.

• Perisai Kamelia is owned by Perisai Petroleum Teknologi Bhd and is now operating in the North Malaysia Basin, offshore Peninsular Malaysia, until 31st May this year under an extended charter to Hess Exploration and Production Malaysia B.V. and Larizz Petroleum Services Sdn Bhd. (The Star Online)

• Enra Group Bhd is acquiring 60 ac. of leasehold land in Labuan for RM7.6 mln from a government agency. The group has inked the deal with Labuan Corporation with a call option to purchase an additional 140 ac. which will be priced at a 20.0% premium from the market value at the time of exercising the call option.

• The call option for the second parcel is exercisable over a period of 36 months from the completed acquisition date of the first parcel. (The Edge Daily)

• LBS Bina Group Bhd is partnering YPJ Plantations Sdn Bhd to jointly develop a 541.4-ac. mixed township in Kota Tinggi, Johor, with an estimated gross development value (GDV) of RM2.6 bln.

• The project is in-line with the group’s property development strategy in extending its portfolio into township development and to further strengthen its presence in Johor.

• The landowner, YPJ Plantations will be entitled to 7.5% of the GDV of the proposed development or minimum guaranteed sum of RM194.9 mln, while LBS Bina will be entitled to the remaining sales proceeds. (The Star Online)

• CIMB Group Holdings Bhd and GHL Systems Bhd have teamed up to provide card payment services for CIMB's corporate clients in Thailand's retail and services segments via the parties’ Thai subsidiaries, CIMB Thai Bank Ltd Bhd and GHL (Thailand) Co Ltd.

• The partnership will allow CIMB Thai's merchants to accept credit card payment services at their premises and online transactions with GHL being the exclusive partner to service and manage these merchants.

• GHL said there is an estimated 400,000 electronic data capture (EDC) and point of sale (POS) terminals, servicing 22 mln credit cards and 48 mln debit cards issued in Thailand. (The Edge Daily)

• AMMB Holdings Bhd's (AmBank) 50.0%- owned joint-venture (JV) family Takaful operator, AmMetLife Takaful Bhd has appointed Mydin Mohamed Holdings Bhd Managing Director, Datuk Wira (Dr) Ameer Ali Mydin as its Chairman, effective from 8th March, 2017.

• Datuk Wira has been a member of AmMetLife Takaful board of directors since 2011. (The Edge Daily)

• Loss-making Wintoni Group Bhd was given an extension of time until l 26th August 2017 from Bursa Malaysia Securities to submit its regularisation plan. The latter will reserve the right to suspend the trading of its shares and de-list the company if it fails to make the requisite announcement by 16th June and fail to submit its regularisation plan by the allotted time. (The Edge Daily)  

Source: Mplus Research - 9 Mar 2017