• The FBM KLCI retreated on Tuesday amid mild profit taking activities on some of the index heavyweights amid the lack of fresh leads ahead of the Wesak Day holiday. Most Bursa Malaysia sub-indices closed in the red, except for the consumer, industrial products and technology sector that closed on a positive note.
• Market breadth was fairly mixed with losers outpacing gainers 455-to-427 stocks, with traded volumes slipping to 3.23 bln shares done for the day, some 19.3% lower than the previous day as the lack of fresh catalysts left many market players on the sidelines.

• The main loser on the FBM KLCI were BAT (-38.0 sen), PPB (-10.0 sen), MISC (- 9.0 sen) and Petronas Gas (-8.0 sen). On the broader market, Time dotcom (-68.0. sen) was the main loser as its share price retreated after a strong runup a day earlier, followed by IWCity (-55.0 sen) as the fallout from the cancelled Bandar Malaysia project continues to affect its share price. Other losers include Dutch Lady (-14.0sen) and JHM Consolidated (- 10.0 sen).

• The big movers for the day were Nestle (+70.0senb), Petron Malaysia (+47.0 sen) and glovemakers like Kossan (+30.0 sen), Hartalega (+25.0 sen) and Top Glove (+15.0 sen). On the big board, the main gainers were Hong Leong Financial Group (+10.0 sen), Westports (+6.0 sen) and KLK (+6.0 sen).

• Asian indices were mixed with Japanese stocks continuing to make headway amid a weaker Yen that boosted the performance of export stocks. The Hang Seng climbed, but China stocks continue to be weighted-down by the Chinese authorities’ clampdown on leveraged buying. Most key ASEAN indices were closed for the Wesak Day holiday, but the Jakarta Composite was down 0.8% yesterday.

• U.S. stocks indices were mixed overnight with the Dow losing 0.2%, but both the S&P 500 and the Nasdaq managed to post minute gains to climb to new record closings. Market players shook off the surprise dismissal of the FBI Director with energy shares leading the broader market higher amid the 3.2% surge in oil price.

• Key European indices closed with minute gains as investors digested the string of corporate earnings that were generally ahead of expectations. Both the CAC and DAX just managed to eked-out some gains to end on the positive note, while the FTSE managed to post a stronger gain of 0.6%

The Day Ahead

• The FBM KLCI is once again at the crossroads as it continues to linger within a tight trading range, awaiting for fresh catalysts for the next move. This is evident from the thinner volumes on Tuesday as market participants elected to stay on the sidelines until new leads emerge.

• Under the prevailing market environment, we think the market could continue to stay on a sideway trend for longer, ranging between the 1,760 and 1,770 levels as investors may still be on a tentative mood.

• We also think the tentative trend could extend to the lower liners and broader market as retail players are also growing wary over the market’s near term direction. This may see more participants staying on the sidelines until there are more sustainable leads.

COMPANY NEWS

• Hartalega posted a 45.3% Y.o.Y jump in its 4QFY17 net profit to RM89.4 mln, from RM61.6 mln in 4QFY16, in-tandem with a 31.6% hike Y.o.Y jump in revenue to RM527.0 mln vs. RM400.5 mln in the previous corresponding period. The group also attained greater operational efficiency and lower operation overheads. The group has declared a third interim dividend of two sen per share, payable on 23th June 2017.

• Full year net profit, meanwhile rose 10.0% Y.o.Y to RM283.0 mln, from RM257.4 mln in the previous corresponding year – contributed by improvements in sales revenue and a stronger U.S. Dollar. The reported earnings and revenue were within our expectations - accounting to 105.5% of our FY17 estimated net profit of RM283.0 mln and 102.7% of our FY17 revenue of RM1.82 bln.

Comments

• Although the group’s full year earnings were largely within our estimates, we tweaked our earnings estimate for FY18 higher by 4.1% to RM340.1 mln after taking into account higher ASP amid the rising input costs, sustained demand for global medical gloves and Hartalega’s progressive capacity expansion. We also introduce our earnings estimates for FY19 with a net profit forecast of RM368.0 mln

• We maintain our HOLD recommendation on Hartalega with higher target price of RM5.40 (from RM5.00), on expecations of higher sales volume in-line as Hartalega’s capacity expansion, superior operational efficiency with utilisation rate running at an average of 88.0% in FY17 and higher ASP amid cost rising input cost. We remain sanguine that the additional capacity churned out by the group that should be sufficiently absorbed by the market with demand for rubber gloves expected to grow around 8.0%-10.0% per year.

• Our target PER of 30.0x (from 25.0x) is at a premium to its peer’s average of 20.0x on its revised FY18 EPS of 20.7 sen due to: (i) Hartalega’s position as the global market leader in the growing nitrile glove industry, (ii) superior operational efficiency in terms of production speed and the lower number of workers per glove output, as well as (iii) solid fundamentals where it commands the highest net profit margin vs. its peers.

Company Briefs

• Gas Malaysia Bhd posted a 7.5% Y.o.Y growth in its 1Q2017 net profit to RM33.7 mln, from RM31.4 mln a year ago, on higher gross profit and lower administrative expenses. Meanwhile, revenue for the quarter jumped 23.5% Y.o.Y to RM1.19 bln, from RM961.3 mln in 1Q2016.

• It has earmarked around RM500.0 mln in capex for its pipeline network expansion in the next three years, which includes its Natural Gas Distribution System (NGDS) network in Peninsular Malaysia. The group has so far extended its NGDS network to 2,186 km, servicing more areas while successfully maintaining 99.0% service reliability.

• The group also aims to achieve 3.5% to 4.0% growth in sales volume and customer base, following a 3.0% volume growth last year. (The Edge Daily)

• EKA Noodles Bhd changed its plans to close down two of its loss-making subsidiaries, namely EKA Foodstuff Sdn Bhd (EFSB) and Kilang Bihun Bersatu Sdn Bhd (KBBSB), four months after proposing to shut down the manufacturing plants on 12th January this year. Subsequently, the group announced that both units will now resume their operations and expects KBBSB to resume its full production activities by next month.

• Further, the group has appointed Tan Sri Tan King Tai @ Tan Khoon Hai as its NonIndependent and Non-Executive Chairman, following the resignation of former Independent Non-Executive Chairman Datuk Sohaimi Shahadan on 2th May 2017.

• Tan Sri Tan is the father-in-law of EKA Noodles’ Executive Director Fong Yit Meng and sits on the Board of Directors in Pensonic Holdings Bhd, Muar Ban Lee Group Bhd and SWS Capital Bhd. (The Edge Daily)

• TRC Synergy Bhd signed a 12-year operating service agreement (OSA) agreement with Starwood Australia Hotels Pty Ltd to manage Element Melbourne Richmond, a hotel in Melbourne, Australia.

• Both parties also signed a Centralized Services Agreement for certain services provided to the hotel and a Design Review Agreement for certain services with regards to the design and development of the hotel.

• TRC said the development will consist of one hotel building with 168 guest rooms of minimum room size of 24 square meters, meeting space, eight floors including ground floor and two subterranean levels, 33 parking spaces, food and beverage facilities, fitness centre and other additional facilities and amenities required by the Element Hotel brand standards. The development is slated to begin by 30th December, 2017 and commenced operations by February 2020. (The Edge Daily)

• ManagePay Systems Bhd has been appointed by a joint-venture company (JVCo) formed by major taxi consortiums known as PICK N GO Sdn Bhd as the sole card payment facilitator for the JVCo's taxi e-hailing mobile application.

• The appointment will enable participating taxi operators to accept major card payments through their new taxi e-hailing mobile application, PickNGo. MPay will also be deploying card terminals or MPOS for the acceptance of physical card payments for up to 8,000 registered taxis in Malaysia under the consortium by end of this year. (The Edge Daily)

• Tenaga Nasional Bhd has signed a new power purchase agreement (PPA) and land lease agreement (LLA) with YTL Power International Bhd. YTL operates a combined-cycle gas-fired power plant in Paka, Terengganu.

• The aforementioned agreements are expected to take effect on 1st September 2017, which is also the scheduled commercial operation date of the power plant. The new LLA will replace the terms and conditions of the original LLA dated 30th July 1993 between TNB and YTL.

• The new PPA will govern the rights and obligations of the parties for the generation and sale of electricity, and for YTL to make available to TNB the generating capacity of up to 585 megawatt (MW) from its Paka plant.

• Gadang Holdings Bhd’s 51.0%-owned JVCo, Gadang CRFG Consortium Sdn Bhd has secured a major traffic dispersion and improvement job from TRX City Sdn Bhd worth RM327.9 mln. China Railway First Group Co owns the remaining 49.0% in Gadang CRFG Consortium.  

Source: Mplus Research - 11 May 2017