• The FBM KLCI (-0.3%) slipped into the red yesterday as investors booked-in profits ahead of potentially higher U.S. interest rates and lingering geopolitical uncertainties. The lower liners retreated, while the technology sub-sector (-2.2%) led the broader market lower.

• Market breadth turned negative as losers outrun winners on a ratio of 557-to-349 stocks. Traded volumes rose 7.2% to 2.05 bln shares on the back of profit-taking activities ahead of key global events this week.

• Key-index laggards were Petronas Dagangan (-14.0 sen), MISC (-13.0 sen), Genting (-11.0 sen), IHH Healthcare (-8.0 sen) and Genting Malaysia (-7.0 sen). Meanwhile, significant losers on the broader market included technology stocks like MPI (-42.0 sen) and Globetronics (-26.0 sen), while the other key losers were Malaysia Airport (-25.0 sen) Khind (-25.0 sen), and Time Dotcom (-11.0 sen).

• On the opposite side of the trade, Dutch Lady (+54.0 sen), Perusahaan Sadur Timah Malaysia (+22.0 sen), Y.S.P. Southeast Asia Holding (+19.0 sen), Heineken Malaysia (+12.0 sen) and Zhulian (+12.0 sen) outperformed its broader market peers. Key index movers on Tuesday were Hong Leong Bank (+8.0 sen), KLCC (+8.0 sen), Hap Seng Consolidated (+6.0 sen), Sime Darby (+2.0 sen) and Telekom Malaysia (+2.0 sen).

• Key regional benchmark indices recovered from Monday’s losses to close mostly higher, ahead of China’s industrial data. The Nikkei, however, extended its losses for the second consecutive day as the Yen strengthened amid growing geopolitical uncertainties. The Hang Seng was 0.6% higher, with all but the industrials (-0.2%) sector in the red, alongside the Shanghai Composite which gained 0.4% to close above the 3,150.0 psychological level. Meanwhile, the majority of the ASEAN indices also finished positively.

• U.S. equities hit record highs, buoyed by the recovery in tech stocks and an expected increase in interest rates by the Federal Reserve on Wednesday. The Dow finished 0.4% higher, on the back of gains in Visa Inc (+1.7%), Microsoft (+1.3%) and Apple (+0.8%). Similarly, the S&P 500 rose 0.5%, while the Nasdaq notched 0.7% to close in the green.

• European stockmarkets rebounded, amid bargain-hunting activities in technology stocks after its two-day selldown, to finish on a positive note. The FTSE (- 0.2%), however, continued to be weighed down by uncertainties in its political landscape, while the DAX (+0.6%) rallied. The CAC also added 0.4% as regional sentiments were boosted by gains in Italian banks like Ubi Banca (+3.4%) after Italy’s Economy Minister signalled that a deal to rescue the ailing Veneto banks is close.

The Day Ahead

• Despite yesterday’s market retreat, valuations remains stretched with fewer compelling buys. Still, we think the stocks on Bursa Malaysia could mount a quick recovery and head-up over the near term amid the positive performance on Wall Street overnight that is seeing new records formed in anticipation of an interest rate hike to be announced today.

• The near term FBM KLCI target is the 1,790-1,795 levels, but we think the buying will be selective due to the toppish market conditions. The lower liners may also see renewed interest as retail players take advantage of the positive market undertone for trading activities, albeit we continue to expect quick profit taking activities could limit the near term upsides.

Company Update

• A consortium comprising Barakah Offshore Petroleum Bhd’s unit, PBJV Group Sdn Bhd and Beumer Maschinenfabrik GmbH & Co KG has been awarded a contract from Petronas Chemicals Group Bhd’s (PetChem) subsidiary, Asean Bintulu Fertilizer Sdn Bhd (ABF). The value of the contract for PBJV based on its work scope was estimated at RM35.0 mln.

• The contract involves basic and engineering, procurement, fabrication/ construction/installation for all components, works and facilities for ABF’s urea plant; pre-commissioning, inspection and testing; and commissioning, start-up and installation of the plant’s facilities. The work for the contract would be carried out from 1st June 2017 until 31st December 2019, with an option for extension of up to four months by ABF. (The Star Online)

Comments

• The abovementioned project marks its first major project secured in 2017. Barakah’s unbilled orderbook now stands at approximately RM900.0 mln will provide earnings visibility over the next two years. Moving forward, the group will continue to focus on cost optmisation and focus on securing contracts from the domestic market.

• Given that it falls within our orderbook replenishment of RM300.0 mln for 2017, we made no changes to our valuations and maintain our SELL recommendation with an unchanged target price of 25.0 sen. Our target price is arrived by ascribing an unchanged target PER of 14.5x to our 2018 fully diluted EPS estimate of 1.6 sen.

• V.S. Industry Bhd‘s (VSI) 3QFY17 net profit surged 161.6% to RM50.5 mln, from RM19.3 mln in the previous corresponding period, due to higher orders from its key clients. Accordingly, revenue for the quarter grew 68.2% Y.o.Y to RM854.1 mln, from RM507.8 mln in 3QFY16. The group has also declared a dividend of 1.5 sen per share, payable on 28th July 2017.

• Cumulative 9MFY17 net profit was 11.7% higher to RM119.5 mln, compared to RM107.0 mln a year ago, mainly attributed to the stronger revenue which rose 41.7% to RM2.3 bln, from RM1.62 bln in the same period last year.

• VSI’s reported earnings were higher than our expectations, accounting to 84.4% of our full-year estimated net profit of RM141.6 mln, although the reported revenue were broadly in-line, accounting to 76.4% of our estimated FY17 revenue of RM3.01 bln.

Comments

• As the reported earnings were above our estimates, we increased our FY18 earnings forecast by 5.4% to RM226.0 mln after we tweaked our margin assumptions. We maintain our BUY recommendation on VSI, but with a higher target price of RM2.35 (from RM2.20) by ascribing an unchanged PER of 15.5x to its FY18 diluted EPS of 15.2 sen.

• The ascribed target PER is about 19.0% premium to industry average of around 13.0x, which we believe is justified in view of the group’s leading position in Malaysia’s EMS industry. The premium is also accorded for its wide array of supply chain services and established earnings track-record, as well as the potentially strong forward earnings growth on offer.

Company Briefs

• Bermaz Auto Bhd’s (formerly Berjaya Auto Bhd) 4QFY17 net profit sank 57.0% Y.o.Y to RM22.2 mln, on lower sales and tighter profit margin as the Ringgit remain weak against the Japanese Yen. Revenue for the quarter slipped 33.8% Y.o.Y to RM354.0 mln.

• For FY17, cumulative net profit contracted 40.0% Y.o.Y to RM119.1 mln. Revenue for the year declined slid 20.8% Y.o.Y to RM1.66 bln. A fourth interim dividend of 3.15 sen per share and a special dividend of 7.50 sen per share, payable on 26th July 2017, was announced. (The Star Online)

• Felda Global Ventures Holdings Bhd's (FGV) board of directors has served show cause letters to its President cum Chief Executive Officer, Datuk Zakaria Arshadnd Chief Financial Officer, Ahmad Tifli Mohd Talha after they were forced to go on leave on 6th June 2017. This is in relation to the long outstanding debt of Safitex Trading LLC with FGV's subsidiary Delima Oil Products Sdn Bhd. (The Edge Daily)

• Vivocom International Holdings Bhd has bagged a RM195.2 mln contract to construct condominium blocks under the 1Malaysia Civil Servants’ Housing Programme (PPA1M) in Perak. The contract from SBA Property Management Sdn Bhd is for the building of four blocks of 1,200 PPA1M condominium units in Manjung. The project will commence upon site possession and completed within 42 months. (The Edge Daily)

• KPJ Healthcare Bhd’s 60.6%-owned subsidiary, Perdana Specialist Hospital Sdn Bhd (PSHSB) is acquiring a 938- sq.m. office building in Kota Bharu, Kelantan for RM6.8 mln. The acquisition enables PSHSB to expand and complement the business operations of KPJ Perdana Specialist Hospital. (The Edge Daily)

• PRG Holdings Bhd is exploring joint venture opportunities with Syarikat Perumahan Negara Bhd (SPNB) on affordable housing projects nationwide, with combined gross development value (GDV) of RM5.00 bln. PRG signed a Memorandum of Understanding on 13th June 2017 with SPNB, together with project consultant, Mimbar Nusantara Sdn Bhd to collaborate on the projects.

• Under the MoU, PRG will be involved in the construction and development of the housing projects. Mimba Nusantara — which has participated in several affordable housing projects with SPNB will focus on project coordination and consultation. (The Edge Daily)  

Source: Mplus Research - 14 Jun 2017