• The FBM KLCI managed to eke-out minor gains at yesterday’s close to end its 2-day losing streak, albeit the general market environment remained dour on the continuing profit taking activities in the absence of fresh leads. Consequently, most Bursa Malaysia sub-indices were in the red, with the exception of the Trading/Services, Industrial and Mining indices.

• Market breadth remained negative with 680 losing stocks against 235 gaining stocks. Traded volumes, however, rose nearly 13% to 2.61 bln shares.

• IHH (+25.0 sen) led the gainers on the big board, followed by Genting (+17.0 sen), Westports (+16.0 sen) and Petronas Gas (+26.0 sen). In the broader market, Ajinomoto jumped RM1.30 after it announced stronger earnings and a special dividend. Other gainers were KESM (+26.0 sen), Elsoft (+14.0 sen), Nestle (+12.0 sen) and Tasek Cement (+12.0 sen).

• The top losers were Panasonic Malaysia (-64.0 sen), F&N (-48.0 sen), Far East (- 32.0 sen) and Vitrox (-31.0 sen). The main index losers include Genting Malaysia (-35.0 sen) and banks like CIMB (-8.0 sen), Maybank (-4.0 sen) and Ambank (-10.0 sen).

• Regional indices were relatively quiet with the Hang Seng and Shanghai Composite closed for holidays, while the Nikkei closed marginally lower in thin trading with few leads as many markets were closed. ASEAN indices were mixed at the close.

• U.S stocks retreated overnight as investors await for more leads on the upcoming FOMC meeting to gauge the likelihood of an interest rate hike, albeit market participants are largely expecting a rate hike in June. Both the Dow and S&P 500 retreated slightly at the close, while the Nasdaq also slipped slightly.

• European stockmarkets were also lower as banking stocks were again pressured by the concerns over the health of Italian banks. Most regional indices closed lower with the CAC falling 0.5%, followed by the FTSE with a 0.3% fall, while the DAX retreated 0.2%.

The Day Ahead

• We continue to see the market environment staying on the dour side due to the absence of fresh catalysts and the corresponding lack of buying interest. This is likely to keep the overall market sentiments on the weak side and we expect the profit taking activities to sustain for longer, particularly among the lower liners and broader market shares.

• Meanwhile, there appears to be minor support on the index heavyweights yesterday and we expect this trend to remain amid the continuing mild bargain hunting activities. This could help to keep the key index within the 1,760 and 1,770 levels over the near term.

Company Update

• Barakah Petroleum posted a net loss of RM4.6 mln in 1Q2017 against a net profit of RM1.3 mln in the previous corresponding period. Revenue, meanwhile declined 25.6% Y.o.Y to RM76.8 mln as work order slowed substantially during the quarter.

Comments

• The results were certainly below expectations as the difficult operating environment in the oil & gas sector continues to bite. In particular, its installation and construction services saw a 44.3% drop in revenue recognition to RM45.8 mln on fewer work orders, despite the pipeline and commissioning services division posting a 47.4% increase in revenue to RM31.1 mln.

• Apart from the lower revenue due to few jobs, its margins were also thinner despite its continuous cost cutting measures that resulted in its gross profit margin slipping to 22.0% in 1Q2017, from 27.8% in the previous corresponding period. Its earnings were further depressed by higher depreciation charges on its KL101 barge following a restatement of the asset value to U.S. Dollars.

• The outlook for the rest of the year remains challenging amid the still slow progress where 76% of its outstanding orderbook is on a call-out basis and is highly subjected to its clients CAPEX and OPEX requirements. With Petronas still on a tight leash on its spending, the group’s work order prospects remains clouded, albeit there should still be some regular inspection activities later in the year.

• Meanwhile, its KL 101 barge continues to be idle with the low work orders and will continue to strain the group’s cash flow position with the interest payments.

• We are revising our earnings in view of the weaker results and an update will be provided later. Our most recent recommendation was a HOLD with a target price of 70 sen.

Company Update

• OCK Group Bhd registered a 27.3% Y.o.Y jump in its 1Q2017 net profit to RM4.7 mln, from RM3.7 mln in the same quarter last year. The improved earnings followed higher quarterly revenue in 1Q2017, which rose 36.2% Y.o.Y to RM106.5 mln, from RM78.2 mln, on the back of stronger revenue contribution from the telecommunication network services (TNS) segment.

• Despite the higher reported earnings, they were below our forecasts, accounting to only 14.3% and 20.1% of our 2017 net profit and revenue of RM33.1 mln and RM528.6 mln respectively.

Comments

• Although OCK’s quarterly results came in short of our estimates, we leave our earnings forecasts unchanged as we anticipate stronger earnings going forward to make up for the current shortfall. Historically, the group’s cumulative nine-month net profit only accounts to an average of 55.3% of their full year net profit. Consequently, we maintain our HOLD recommendation on OCK with an unchanged target price of RM0.95.

• We adopted a sum-of-parts (SOP) approach 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. 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.

Company Update

• AWC Bhd’s 3QFY17 net profit fell 12.6% Y.o.Y to RM5.0 mln, from RM5.8 mln previously, due to weaker performance from engineering divisions- due to project delays in the current quarter, albeit slightly offset by stronger revenue contribution from the facilities division. Revenue was also down by 10.5% Y.o.Y to RM67.4 mln vs. RM75.3 mln last year.

• Cumulatively, the group’s 9MFY17 net profit surged 45.8% Y.o.Y to RM15.7 mln, from RM10.8 mln last corresponding year, on higher sales revenue due to commencement of projects secured last year. Revenue also grew 16.1% Y.o.Y to RM201.2 mln, from RM173.3 mln last year.

• AWC’s reported earnings were broadly within our expectations as it accounts to 70.6% of our full-year estimated net profit of RM22.2 mln, while the reported revenue amounts to 74.5% 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 RM1.13 bln is expected to provide earnings visibility of more than four years.

• Meanwhile, we raise our FY18 earnings and revenue forecast slightly by 1.0% and 3.8% to RM24.2 mln and RM332.4 mln respectively to reflect improving margins. Subsequently we raise our call on AWC to BUY (from HOLD) recommendation with a higher target price of RM1.20. Our target price is derived from ascribing an unchanged target PER of 13.0x to our rolled-over FY18 EPS of 9.1 sen.

Company Briefs

• Supermax Corp Bhd reported a 3QFY17 net profit of RM19.8 mln, while revenue rose to RM308.2 mln on higher rubber glove output and ASP, on top of a weaker Ringgit vs. the U.S. dollar. There were no comparative figures from a year earlier, as the group had changed its financial year-end from 31st December to 30 June. Supermax has also declared a dividend per share of 2.5 sen, payable this 28th July, 2017. (The Edge Daily)

• DRB-Hicom Bhd’s 4QFY17 net loss narrowed by 58.0% Y.o.Y to RM328.5 mln, from RM790.8 mln in the previous corresponding quarter, as revenue was 32.0% higher at RM3.48 bln, from RM2.63 bln a year earlier. (The Star Online)

• Panasonic Manufacturing Malaysia Bhd's 4QFY17 net profit declined 26.0% Y.o.Y to RM26.8 mln vs. RM36.2 mln a year earlier, on higher raw material costs, although revenue only fell by 1.0% Y.o.Y to RM247.3 mln, from RM249.7 mln in 4QFY16.

• The group is proposing a final dividend of RM1.02 per share, compared to a payout of RM1.24 last year. (The Edge Daily)

• Karex Bhd‘s 3QFY17 net profit shrank 28.3% Y.o.Y to RM6.9 mln, from RM9.6 mln last year, on higher distribution expenses. Revenue, however gained 4.5% Y.o.Y to RM92.2 mln, from RM88.2 mln in the previous corresponding period. (The Edge Daily)

• Damansara Realty Bhd announced that its external auditors have issued a statement over a material uncertainty in its financial statements that may cast significant doubt on the company's ability to continue as a going concern.

• The auditors expressed concerns over its financial statements for the year ended 31st December, 2016 when it incurred RM27.0 mln net loss. (The Star Online)

• Ahmad Zaki Resources Bhd's (AZRB) 1Q2017 net profit jumped 45.7% Y.o.Y to RM6.1 mln, from RM4.2 mln a year ago, on the back of improved construction margins, as well as the inclusion of contribution from the International Islamic University Malaysia (IIUM) Medical Centre facilities management concession. Revenue for the quarter however, weakened 19.1% Y.o.Y to RM250.2 mln, from RM309.4 mln a year ago. (The Edge Daily)

• Ekovest Bhd's 3QFY17 net profit was flattish at RM11.1 mln, mainly due to a one-off expense of RM22.6 mln on recognition of fair value adjustment following the granting of the Employees' Share Option Scheme and lower contribution from the preliminary and enabling work for the SetiawangsaPantai Expressway (SPE). On the other hand, quarterly revenue soared 57.9% Y.o.Y to RM291.8 mln, from RM184.8 mln in 3QFY16. (The Star Online)

• Padini Holdings Bhd's 3QFY17 net profit fell by less than 1.0% to RM34.8 mln, from RM35.1 mln a year ago, due to lower gross profit margin and higher staff costs, despite the 9.2% Y.o.Y increase in revenue to RM373.7 mln.

• Padini also proposed a fourth interim dividend of 2.5 sen per share and a special dividend of 1.5 sen per share, payable on 30th June 2017. (The Edge Daily)

• CAB Cakaran Corp Bhd’s 2QFY17 net profit jumped 60.3% Y.o.Y to RM9.9 mln, from RM6.2 mln a year ago, intandem with stronger revenue contribution and higher ASP. Revenue grew 30.4% Y.o.Y to RM349.1 mln, from RM267.7 mln previously. (The Edge Daily)

• Wah Seong Corp Bhd’s 1Q2017 net profit rose four-fold to RM9.5 mln, from RM2.4 mln in 1Q2016 after posting three consecutive quarters of losses as activities started to pick up in the oil and gas (O&G) segment. Quarterly revenue however, fell 7.0% Y.o.Y to RM316.8 mln from RM340.9 mln a year ago. (The Edge Daily)

• MY E.G. Services Bhd posted a 62.8% Y.o.Y surge in its 3QFY17 net profit to RM53.9 mln, from RM33.1 mln on higher transaction volumes from the online renewal of foreign workers’ permits, foreign workers rehiring programme services and foreign workers’ insurance from both FWP and FWR services.

• Quarterly revenue also increased 41.5% Y.o.Y to RM99.2 mln, from RM70.1 mln in the same quarter a year ago. (The Edge Daily)  

Source: Mplus Research - 31 May 2017