• The Malaysian stockmarket ended the week on a soft note with the key index slipping as profit taking activities prevailed ahead of the weekend. The market environment was also considerably weaker that saw most subindices closing in the red, particularly among the lower liners as the FBM Ace index fell sharply by 2.2%, while the FBM Fledgling index declined 1.3% to emerge as the biggest losers of the day.

• The renewed selling on the lower liners also resulted in losers overwhelming gainers 770-to-208 stocks, while volumes continue to thin, albeit marginally lower by 3.0% to 2.86 bln shares.

• On the losers list were Petron Malaysia (- 43.0 sen) and Oldtown –the latter on its significantly lower earnings, followed by Rapid (-22.0 sen) and Kim Hin (-19.0 sen) Meanwhile, Engtex slipped 9.0 sen despite reporting stronger earnings that was aided by a land sale. On the big board, the main losers were Genting Malaysia (-18.0 sen), IHH (-9.0 sen), Petronas Gas (-4.0 sen) and MISC (-8.0 sen).

• After losing ground a day earlier on their weaker earnings, Telekom Malaysia (+10.0 sen) and Axiata (+4.0 sen) rebonded to lead the gainers on the FBM KLCI. Other index heavyweight movers include CIMB (+3.0 sen) and Digi (+3.0 sen). On the broader market, JHM rose 18.0 sen, followed by Lafarge (+16.0 sen), Nestle (+14.0 sen) and Aeon Credit (+10.0 sen). Meanwhile, Sunway Construction rose 3.0 sen after it reported stronger quarterly earnings.

• Regional indices were mixed with Greater China stocks advancing slightly, while Japanese stocks faltered. Both the Hang Seng and Shanghai Composite posted marginal gains, while the Nikkei lost 0.6% after energy stocks slipped following OPEC’s less-than-expected production cuts. ASEAN indices were also mostly lower, with the exception of the Jakarta Composite.

• U.S. stocks were little changed to end the week as there was a lack of catalysts to determine the trading direction. The Dow retreated by 0.01%, while the S&P 500 tipped-up 0.03%. The Nasdaq gained nearly 0.1% to end the week on a positive note and a new record.

• European indices were also little changed and were lacklustre on worries over the health of Italian banks resulting in regional banks also taking a hit. Oil stocks were also affected by OPEC’s lessthan-expected production cut targets.

The Day Ahead

• We continue to see lacklustre trading on Bursa Malaysia over the near term amid the lack of fresh catalysts, both from domestic and foreign sources. The same condition is seeing more market players retreating to the sidelines, particularly among the lower liners and broader market shares that witness fresh selling on Friday and it was only the selective support on index heavyweights that limited the key index’s fall.

• Therefore, we expect the key index to continue drifting and lingering within a tight range between the 1,770 and 1,780 levels over the near term with the index heavyweights again providing the market support.

• Market breadth and depth are also expected to stay thinner with more market players staying on sidelines and this trend is likely to sustain until there is a change in the market’s direction.

COMPANY UPDATE

• Mitrajaya Holding Bhd’s 1Q2017 net profit rose 55.5% Y.o.Y to RM28.7 mln on the back of a 49.0% Y.o.Y jump in revenue to RM291.4 mln.

• The significant jump in its revenue was contributed by its construction division that registered a 48.8% surge in revenue to RM245.8 mln on higher recognition of its ongoing projects, while its earnings was boosted by the compensation sum amounting to RM10.9 mln from the compulsory acquisition of its land in Pengerang, Johor.

Comments

• While Mitrajaya’s revenue amounted to 29.3% of our 2017 forecast, we view it as broadly within expectations on an accelerated pace of construction activities that is likely to normalise later in the year. Excluding the contribution from the compulsory land acquisition, however, its earnings would have been below expectations with its pretax profit amounting to RM27.7 mln, which is at 18.8% of our 2017 forecast after its construction margins thinned slightly, while earnings from its property development was lower.

• Nevertheless, we maintain Mitrajaya’s earnings forecast for 2017 and 2018 as we expect contributions from its property development activities, both domestic and in South Africa to catch up later in the year, while the slightly thinner construction margins is not a cause for immediate concern. Therefore, we maintain our BUY recommendation with an unchanged target price of RM1.75.

• We continue to arrive at our target price by pegging an unchanged target PER of 11.0x to its fully diluted 2017 construction earnings, while its property development businesses are valued at 0.6x their respective book values.

COMPANY UPDATE

• Econpile’s 3Q2017 revenue and net profit rose 32.9% Y.o.Y and 23.5% Y.o.Y to RM162.3 mln and RM22.1 mln respectively. For 9MFY17, revenue increased 27.1% Y.o.Y to RM424.3 mln, while net profit improved 22.0% Y.o.Y to RM59.9 mln. Econpile has also declared a single tier dividend of 3.0 sen per share, payable of 22 June 2017.

Comments

• The results were within expectations with its revenue amounting to 71% of our full-year forecast, while its net profit was at 73.1% of our estimate.

• Econpile’s prospects remains firm with its RM1.0 bln orderbook to keep it busy for the next 18 months. Hence, there is no change to our earnings estimate with a net ESP forecast of 16.2 sen and 17.6 sen for FY17 and FY18 respectively.

• Nevertheless, its valuations are already fair and its share price is already above our target price of RM2.30, but given the still positive construction sector environment, we believe the stock still warrants a HOLD with the improving prospects for further orderbook replenishment, particularly with the plethora of upcoming infrastructure projects that is expected to benefit the group.

• We arrive at our target price by ascribing an unchanged target PER of 13x to its FY18 EPS, which is similar with peers with similar market capitalisation.

Company Briefs

• China Automobile Parts Holdings Ltd (CAP) is expected to miss the deadline to submit the 1Q2017 financial results, while adding that it is unsure on when it can submit the report. The group’s risks suspension of trading if it fails to submit the report by 8th June, 2017.

• Earlier, its auditor, PKF has retracted its 2015 audit report, the first time in Malaysia an auditor has renounced reliability of a given prior audit opinion involving a public-listed firm. (The Star Online)

• Mah Sing Group Bhd is acquiring a 78.0% equity stake in Cosmowealth Housing Development Sdn Bhd for RM55.0 mln. The latter is in the midst of buying 8.5 acres of land in Sentul for RM95.1 mln. The proposed land will be used to develop affordable serviced apartments — priced from RM326,000 per unit — in a development named 'MCentura' on the land, with a gross development value (GDV) of RM1.3 mln.

• Meanwhile, its acquisition of RM60.0 mln land facing Titiwangsa Lake Garden for a RM650.0 mln development has hit a roadblock, amid competing claims on land ownership. It is currently verifying the claim. (The Star Online)

• Icon Offshore Bhd has secured a RM5.4 mln contract to provide a 60-tonne bollard pull anchor handling tug supply vessel for Sarawak Shell Bhd and Sabah Shell Petroleum Co Ltd's operations for 10 months. (The Edge Daily)

• Serba Dinamik Holdings Bhd has clarified that it is in the final stages of discussions to acquire Bangunan AFFIN Bank Shah Alam from Affin Holdings Bhd, which is estimated to worth RM38.3 mln. The group is planning to use RM30.0 mln from Serba Dinamik's initial public offering to buy the 16- storey building. (The Edge Daily) ? KPJ Healthcare Bhd‘s 1Q2017 net profit increased 12.0% Y.o.Y to RM38.3 mln, from RM34.2 mln previously, on higher contributions from its operations in Malaysia, Australia and Bangladesh. Quarterly revenue rose 6.7% Y.o.Y to RM793.9 mln, from RM744.0 mln in the previous corresponding period. Subsequently, the group is planning a 1.8 sen dividend. (The Star Online)

• RCE Capital Bhd‘s 4QFY17 net profit tripled to RM21.3 mln, from RM6.9 mln in the previous corresponding period due to lower loan impairment and higher revenue that expanded 29.2% Y.o.Y to RM57.3 mln, from RM44.3 mln a year ago.

• Meanwhile, full year net profit doubled to RM79.0 mln against RM39.6 mln in FY16, mainly from the enlarged loan base in its consumer financing segment, whereas revenue grew 37.5% Y.o.Y to RM223.3 mln, compared to RM162.4 mln in 2016. The group has declared a 3.0 sen dividend (The Edge Daily)

• Boustead Heavy Industries Corp Bhd made a turnaround with a 1Q2017 net profit of RM2.7 mln vs. a net loss of RM19.0 mln in the same quarter last year, in-tandem with a 22.0% Y.o.Y jump in turnover to RM76.8 mln, from RM63.0 mln last year. (The Edge Daily)

• Titijaya Land Bhd's 3QFY17 net profit rose by 26.8% Y.o.Y to RM19.2 mln, from RM15.2 mln a year earlier, on better cost management, although revenue for the quarter declined by 32.0% Y.o.Y to RM70.5 mln, from RM103.7 mln previously. (The Edge Daily)

• Tropicana Corp Bhd’s net profit more than doubled to RM32.5 mln in 1Q2017 against RM15.2 mln a year ago, mainly on the stronger performance of its core property development operations. Revenue also jumped 33.1% Y.o.Y to RM381.9 mln. (The Edge Daily)

• Pestech International Bhd's net profit rose 92.8% Y.o.Y to RM24.1 mln 4QFY17 from RM12.5 mln a year ago, on higher project revenue that come in at RM170.8 mln, 38.4% Y.o.Y higher than the previous corresponding period.

• For the full year, however, net profit dipped 2.2% to RM49.2 mln from RM50.4 mln in the previous year, while revenue grew 23.8% to RM393.6 mln from RM318.02 mln in FY16. (The Edge Daily)

• MCT Bhd's 3QFY17 net profit plunged 73.1% Y.o.Y to RM5.2 mln, from RM19.3 mln a year earlier, due to the mix of projects with varying completion stages sold to the market. Similarly, revenue was down by 8.6% Y.o.Y to RM137.3 mln, from RM150.2 mln in 3QFY16. (The Edge Daily)

• Meanwhile, cumulative 9MFY17 net profit fell 29.1% Y.o.Y to RM45.6 mln, compared with RM64.3 mln previously, alongside revenue, which fell 13.1% Y.o.Y to RM430.3 mln, from RM495.2 mln.

• Kenanga Investment Bank Bhd's 1Q2017 net profit tumbled 76.0% Y.o.Y to RM1.9 mln, from RM7.8 mln a year ago year, mainly attributed to lower trading and investment income. Quarterly revenue, however, grew 11.2% Y.o.Y to RM169.1 mln, against RM152.1 mln in the same period last year. (The Edge Daily)

• PIE Industrial Bhd saw its 1Q2017 net profit jumped 5.5x to RM11.6 mln, from RM2.1 mln a year ago, lifted by higher revenue and forex gains, alongside with the reversal of slow-moving inventory. Revenue for the quarter also grew 35.0% Y.o.Y to RM161.9 mln, from RM119.7 mln. (The Edge Daily)  

Source: Mplus Research - 29 May 2017