• Once again, the FBM KLCI ended the day with minute gains after springing up strongly during the day as the afternoon profit taking limited the day’s gains. The key index retested the 1,780 level, but it proved again to be a formidable level to breach due to the stretched market valuation and fewer significant leads.

• Market breadth remained negative with losers beating gainers 590-to-377 stocks, while traded volumes thinned with only 2.95 bln shares changing hands, compared to 3.38 bln a day earlier as there were fewer fresh leads.

• Banking stocks were among the main movers with CIMB rising 19.0 sen after it reported stronger quarterly earnings, followed by Maybank (+3.0 sen) and Hong Leong Financial Group (+44.0 sen). Elsewhere, the leading stocks include Hengyuan (+49.0 sen), KESM (+26.0 sen), and Wing Tai Malaysian (+25.0 sen) – the latter making further gains after it received an offer by its major shareholder to take the company private.

• The day’s big losers, meanwhile, included Dutch Lady (-40.0 sen), DKSH (-29.0 sen), MPI (-14.0 sen) and EITA (-13.0 sen). On the FBM KLCI, the main declining stocks were Axiata (-23.0 sen), Petronas Chemicals (-4.0 sen), Telekom Malaysia (- 5.0 sen) and IHH (-2.0 sen).

• Asian stockmarkets remained on the uptrend with China stocks leading the gains after financial stocks were chased up and helped the Shanghai Composite to jump 1.4% for the day. The positivity also extended the Hang Seng with a 0.8% gain. The Nikkei was also higher as the Yen weakened. ASEAN indices were also broadly higher at Thursday’s close.

• U.S. stocks continue to climb with the S&P 500 and the Nasdaq scaling new highs with consumer stocks leading the way following a string of stronger earnings, albeit energy stocks were lower to limit the gains. The Dow, meanwhile, also edged higher, tethering close to its all-time high.

• Earlier, key European indices closed lower due to fewer catalysts as investors await for OPEC’s decision on its output and resulting in energy stocks like BP, Total and Eni dipping. The losses, however, were relatively benign and allowing for the key indices to remain close to their respective record levels.

The Day Ahead

• We continue to think that the FBM KLCI will make further near term headway as the underlying market condition is still firm with global indices remaining at, or near record levels - providing the impetus for local market to also stay positive over the near term.

• However, we also think that the upsides will be limited due to the already stretched valuations and the unavailability of sustainable catalysts. Therefore, the 1,780 level will stay as the major resistance for now, despite the repeated attempts to breach the level, as we maintain our view that stronger catalysts are required for the above resistance to be taken out convincingly.

• While there is still upside potential among the index heavyweights, the lower liners and broader market shares could continue to see a mixed trading environment as there are still few compelling buys and retail players will instead stick to trading plays with a view for quick profit taking activities. We also think market depth may also be tempered by the lower market interest ahead of the weekend.

COMPANY UPDATE

• Protasco Bhd’s 1Q2017 net profit slipped 75.3% Y.o.Y to RM3.3 mln, despite its quarterly revenue increasing 4.0% Y.o.Y to RM132.1 mln. The weaker earnings were due to lower earnings from the road maintenance segment after one of its road maintenance concession contracts was not renewed in the previous corresponding period.

• Its property division also recorded a pretax loss of nearly RM1.0 mln following the completion of all its property projects and deferment in its new property launches. Its engineering unit also saw a 61.0% decline in its pretax profit after it incurred higher operating cost.

Comments

• The results are significantly below expectations with its revenue and net profit only amounting to 12.1% and 8.1% of our previous forecast.

• Its prospects for the remainder of the year also appear weaker with its property segment likely to see a significant underperformance due to delayed launches, where it had earlier planned to launch RM880 mln worth of new property projects during the year. At the same time, its road maintenance operations could also see lower contribution due to less periodic work, albeit its construction segment could see higher contribution as the PPA1M Phase 2 project gets underway.

• Pending further details on its results with a view to revise our earnings forecast and target price lower, we cut our recommendation to a HOLD (from Buy). Our most recent target price was RM1.45.

COMPANY UPDATE

• Oldtown Bhd posted a 46.0% Y.o.Y decline in 4QFY17 net profit to RM9.9 mln, from RM18.4 mln in the previous corresponding year, impacted by weaker performance from both the café chain and manufacturing divisions, as well as a provision made for doubtful debts, which amounted to RM4.8 mln. Revenue for the quarter, however, rose marginally by 2.3% Y.o.Y to RM107.0 mln against RM104.5 mln last year.

• Meanwhile, full year net profit expanded 16.3% Y.o.Y to RM60.8 mln, from RM52.3 mln a year ago, mainly due to strong export sales and forex gains from its manufacturing division. Similarly, revenue was also 8.1% Y.o.Y higher at RM425.2 mln, compared to RM393.4 mln previously.

• The group has also proposed a final single dividend of 1.0 sen and special dividend of 3.0 sen per share.

Comments

• The reported earnings came in marginally below our expectations – accounting to 92.1% our full year estimated net profit of RM66.0 mln, although the reported revenue came within our expectations, accounting to 99.0% of our FY17 revenue forecast of RM429.5 mln. The earnings variance was mainly due to lower margins as the group experienced rising raw material prices and higher other operating expenses.

• Although the results were under our estimates, we leave our earnings forecast unchanged, pending an analyst briefing later and we maintain our HOLD recommendation on Oldtown with an unchanged target price of RM2.70.

• Our target price is derived from ascribing an unchanged target PER of 17.0x to its FY18 EPS of 16.0 sen. The targeted PER is based on a discount to the 21x-25x average PER of consumer products bellwethers like Nestle and Dutch Lady due to Oldtown’s smaller market capitalisation.

COMPANY UPDATE

• Engtex‘s 1Q2017 net profit jumped 22.0% Y.o.Y to RM17.9 mln, from RM14.7 mln a year ago, mainly due a RM7.1 mln gain from the disposal of a piece of land in the quarter under review. Meanwhile, revenue fell 2.9% Y.o.Y to RM253.8 mln vs. RM261.4 mln in 1Q2016.

• The reported earnings came in slightly above our forecasts – accounting to 27.6% our full year estimated net profit of RM64.7 mln, while the reported revenue fell short of our expectations, accounting to 20.8% of our FY17 revenue forecast of RM1169.2 mln. The earnings variance was mainly due to the aforementioned gain in disposal of a piece of vacant land in 1Q2017.

Comments

• As the results were above our estimates, we lift our earnings forecast for 2017 and 2018 by 17.8% and 13.6% to RM76.3 mln and RM93.6 mln respectively to account for the disposal gains.

• Consequently, we maintain our HOLD recommendation on Engtex with a higher target price of RM1.50 (from 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 remains unchanged at 0.6x its BV due to its relatively small-scale property development projects.

COMPANY BRIEFS

• Perwaja Holdings Bhd has failed in its appeal against its delisting on Bursa Malaysia and will be delisted on 30th May, 2017. (The Edge Daily)
• Malaysia Steel Works (KL) Bhd has proposed a 1-for-5 bonus issue, alongside a private placement of up to 10% of its issued shares to raise about RM24.0 mln to repay its borrowings.

• Meanwhile, its 1Q2017 net profit jumped 2.8x to RM14.1 mln, from RM5.1 mln a year ago, on higher selling prices and better margins for its steel bars and billets, while revenue rose 10.0% Y.o.Y to RM348.7 mln, from RM318.0 mln last year. (The Edge Daily)

• Willowglen MSC Bhd has secured two jobs in Singapore totalling RM19.1 mln from SP PowerAssets Ltd and PowerGas Ltd. (The Edge Daily)

• UOA Development Bhd has acquired a freehold land for RM81.1 mln to build a complementary commercial development to its anchor developments in Bangsar South City. The land, measuring 9,686.68 sq. ft., will be paid by internal cash funds. (The Edge Daily)

• Matrix Concepts Holdings Bhd is issuing one-year Islamic commercial papers and seven-year Islamic medium term notes with a combined limit of up to RM250.0 mln.

• The proceeds will be used to finance Matrix's future investments, working capital requirements, capital expenditure and other general purposes. (The Edge Daily)

• Datasonic Group Bhd's 4QFY17 net profit fell 5.2% Y.o.Y to RM18.0 mln, from RM18.9 mln a year ago, dragged down by higher direct costs. Quarterly revenue, however, jumped 25.1% Y.o.Y to RM92.6 mln, from RM74.1 mln in 4QFY16.

• Meanwhile, its full year net profit slipped marginally by 0.6% Y.o.Y to RM62.7 mln, despite revenue rising 31.9% Y.o.Y to RM318.4 mln. It has also declared a 1.5 sen dividend per share. (The Edge Daily)

• IJM Corp Bhd‘s 4QFY17 net profit rose more than five times to RM236.0 mln, from RM44.23 mln a year earlier – due to improved earnings across its numerous operations, while revenue swelled by 43.0% Y.o.Y to RM1.67 bln, from RM1.17 bln in 4QFY16..

• Full year net profit, however, declined 17.6% Y.o.Y to RM653.8 mln, from RM793.6 mln in FY16, as the previous year’s earnings included a one-off gain from disposal of its stake in two Indian subsidiaries. FY17 revenue grew 18.3% Y.o.Y to RM6.07 bln from RM5.13 bln in FY16. Subsequently, the group has proposed a second interim dividend of 4.5 sen per share (The Edge Daily)

• Axiata Group Bhd's 1Q2017 net profit dropped 35.0% Y.o.Y to RM239.0 mln vs. RM368.3 mln a year ago, due to higher depreciation and amortisation charges, finance costs and share of losses from associates. This was despite a 17.0% Y.o.Y growth in revenue to RM5.88 bln, from RM5.01 bln a year earlier. (The Star Online)

• Malayan Banking Bhd (Maybank) posted a 19.3% Y.o.Y increase in its 1Q2017 net profit to RM1.70 bln, from RM1.43 bln a year ago, driven by loans growth, improvement in net interest margin and lower impairment losses, while revenue for the quarter rose to RM11.28 bln from RM11.18 bln. (The Star Online) ? Aeon Co (M) Bhd’s 1Q2017 net profit slipped 21.1% Y.o.Y to RM22.7 mln against RM28.7 mln a year ago, on the back of higher non-operating expenses and interest expense. Quarterly revenue also slid 0.3% Y.o.Y to RM1.07 bln in 1Q2017, from RM1.08 bln in 1Q2016. (The Edge Daily)

• PPB Group Bhd's 1Q2017 net profit surged 45.5% Y.o.Y to RM358.3 mln, from RM246.2 mln a year ago, on higher contribution from its consumer products segment and its associate Wilmar International Ltd.

• Revenue, however, was 7.9% Y.o.Y lower to RM1.03 bln, from RM1.12 bln. (The Edge Daily)

• Sunway Construction Group Bhd's 1Q2017 net profit grew 19.3% Y.o.Y to RM34.7 mln, compared to RM29.1 mln previously, mainly due to wider margins from its construction segments, although revenue fell by 1.1% Y.o.Y to RM419.5 mln, from RM424.4 mln in the same quarter last year. (The Edge Daily)

• Eversendai Corp Bhd posted a 1Q2017 net profit of RM15.3 mln vs. net loss of RM50.4 mln a year ago, mainly due to the absence of financial-asset losses in the current quarter under review. Revenue, however, fell to RM396.0 mln in 1Q2017, compared to RM440.7 mln in 1Q2016. (The Edge Daily)

• Kerjaya Prospek Group Bhd's 1Q2017 net profit rose 21.8% Y.o.Y to RM28.9 mln, from RM23.7 mln a year earlier, driven mainly by its construction segment, while revenue was 25.4% Y.o.Y higher to RM233.2 mln, from RM185.9 mln in 1Q2016. (The Edge Daily)

• YTL Land & Development Bhd posted a 3QFY17 net profit of RM19.0 mln, from a net loss of RM8.1 mln a year earlier, attributed to contributions from The Fennel condominium project in Sentul and higher unrealised forex gain on amounts due from its Singapore subsidiaries following the strengthening of the Singapore dollar. Quarterly revenue climbed 2.7x to RM144.5 mln, from RM53.5 mln in 3QFY16.

• Cumulative 9MFY17 net profit jumped threefold to RM38.3 mln, from RM9.2 mln in 9MFY16, while revenue more than doubled to RM284.3 mln, from RM133.9 mln. (The Edge Daily)  

Source: Mplus Research - 26 May 2017