• The FBM KLCI (-0.1%) declined, dragged down by quick profit-taking activities on selected heavyweights amid weakness in the offshore stockmarkets. The lower liners was splashed in red, while nine-ofthe ten sub-sectors finished lower, with the exception of the properties sector (+0.6%).

• Market breadth was lacklustre as losers outrun winners on a ratio of 541-to-346 stocks. Traded volumes rose marginally by 2.1% to 1.99 bln shares amid the mild profit-taking activities.

• Hong Leong Financial Group (-26.0 sen) led the key index decliners list, followed by Genting Malaysia (-10.0 sen), Maxis (- 7.0 sen), KLK (-6.0 sen) and Petronas Chemicals (-6.0 sen). Meanwhile, other underperformers include Far East Holdings (-40.0 sen), United Plantations (- 20.0 sen) Heineken Malaysia (-16.0 sen), Malaysia Airports (-15.0 sen) and Khind (- 14.0 sen).

• Significant advancers on the broader market were Nestle (+42.0 sen), Ajinomoto (+22.0 sen), Batu Kawan (+16.0 sen) and United U-Li Corporation (+16.0 sen). Sunway added 28.0 sen after announcing plans to list its healthcare unit within the next five years. On the big board, Petronas Gas (+8.0 sen), Tenaga (+4.0 sen), CIMB (+3.0 sen), Maybank (+3.0 sen), and BAT (+2.0 sen) were the biggest gainers.

• Key regional indices were beaten down on Thursday, as investors turned cautious after U.S. raised its interest rates for the second time this year. The Nikkei (-0.3%) continued its downward momentum, weighed down by financial-related stocks as investors await for the Bank of Japan’s latest monetary policy. The Hang Seng (- 1.2%) declined on expectations of higher borrowing cost, in-tandem with the increase in U.S. interest rates due to Hong Kong’s currency peg to the Greenback. The Shanghai, however managed to claw back earlier losses to close in the green, while most ASEAN indices finished lower.

• Wall Street finished in the negative territory amid renewed selling pressure in tech stocks. The Dow (-0.1%) narrowed, on the back of losses in Intel (-0.6%), Apple (-0.6%) and Microsoft (-0.5%). On the broader market, the S&P 500 and the Nasdaq was also lower by 0.2% and 0.5% respectively.

• Earlier, European stockmarkets were splashed in red as investors digested a series of monetary policies from central banks globally. The FTSE lost 0.7%, following the Bank of England’s decision to keep rates unchanged and lower-than expected U.K. retail sales. Similarly, the CAC was 0.5% lower, while the DAX lost 0.9%, dragged down by basic resources and telecoms-related companies.

The Day Ahead

• There appears to be more near term weakness after yesterday’s decline that has left the key index at the 1,790 support level. Still, we see limited downside pressure as there is still some institutional support on selected index heavyweights.

• The broader market, meanwhile, is likely to continue seeing tepid following in the absence of fresh buying leads that is already resulting in traded volumes thinning over the past week. Therefore, we expect the FBM KLCI to trend within the 1,780 and 1,795 levels for the time being.

• Despite the indifferent market environment, we see the current sidewayconsolidation as healthy after the Malaysia’s stockmarket’s strong gains over the past few months. The current trend will allow the market to take a breather and for some of the gains to be digested.

• Going into the second half of the year, global stockmarkets are likely to hold firm amid the continuing improvements in the global economic outlook that will also lend support to the equity markets.

Company Update

• Protasco Bhd has bagged a RM174.4 mln infrastructure works contract from Central Spectrum (M) Sdn Bhd, a subsidiary of Kumpulan Hartanah Selangor Bhd. The deal was secured is for the development of Phase 3C in the Pulau Indah Industrial Park. The works are expected to be completed within 18 months from 5th July 2017 until 5th January 2019. (The Star Online)

Comments

• The above mentioned project marks the first major construction project secured by Protasco in 2017. Similar with the previous construction contracts secured, we expect the project to command EBITDA margins of 11%-13%. Protasco’s outstanding construction orderbook now stands at approximately RM775.4 mln, which will underpin earnings visibility over the next two years.

• With the construction contract coming in within our targeted orderbook replenishment of RM300.0 mln for 2017, we maintain our BUY recommendation on Protasco with an unchanged target price RM1.25. Our target price is based on a sum-of-parts basis by ascribing an unchanged target PER of 11.0x to its 2017 construction earnings as well as a target PER of 8.0x (unchanged) to its 2017 concession and engineering services’ earnings. Its education and trading units valuations remain pegged at target PERs of 6.0x respectively due to their smaller scale businesses, while its property development division’s valuation is from ascribing an unchanged at 0.6x of its BV.

Company Briefs

• SMTrack Bhd plans to acquire a 100.0% stake in Wellspring Worldwide Ltd, the owner of the Tutti Frutti Frozen Yogurt brand, for RM310.0 mln. This will mark a significant change in the business direction of the loss-making Ace Market company, which deploys radio frequency identification (RFID) tags.

• The proposed acquisition would be satisfied with a RM20.0 mln cash payment and the issuance of up to 2.07 bln new ordinary shares in SMTrack at an issue price of 14.0 sen each.

• This cash portion will be from a 3-for-2 renounceable rights issue of up to 169.1 mln new SMTrack shares, with two free detachable warrants with every three rights shares subscribed. Of the RM16.9 mln gross proceeds, RM15.9 mln will go towards paying the RM20.0 mln cash payment. There will also be a proposed private placement of up to 10.0% of the total number of issued SMTrack shares after the proposed rights issue and proposed acquisition.

• As at 31st December 2016, Tutti Frutti Frozen Yogurt brand is present in over 20 countries, having been licensed to over 20 master licensees in the respective countries. There is a two year profit guarantee that the Wellspring group’s after-tax profit for the financial years ending 31st December 2018 and 2019 will not be lower than US$4.5 mln (RM19.2 mln) for each year. The proposals are expected to be completed in 1H2018. (The Star Online)

• Malaysian Resources Corp Bhd’s (MRCB) indirect subsidiary, Metro Spectacular Sdn Bhd is acquiring three parcels of land in the Jalan Putra area of Kuala Lumpur for RM335.5 mln in cash. The 51.0%-owned subsidiary inked an agreement with the mayor of Kuala Lumpur to buy the parcels measuring 40,720.5 sq.m.

• The deal, to be financed through a combination of internally generated funds and/or external borrowings, is expected to be completed by 4Q2017. Of the three parcels of land, only one parcel measuring 17,988.9 sq.m. has a freehold tenure. (The Star Online)

• Eco World Development Group Bhd’s (EcoWorld) 2QFY17 net profit declined 2.9% Y.o.Y to RM33.9 mln due to a change in the products mix of affordable units in Eco Botanic and Eco Majestic which yield lower gross margins. Revenue for the quarter, however, gained 9.0% Y.o.Y to RM670.0 mln.

• For 1HFY17, cumulative net profit jumped 170.7% Y.o.Y to RM149.9 mln. Revenue for the period improved 16.7% Y.o.Y to RM1.26 bln. (The Edge Daily)

• Eco World International Bhd’s (EWI) 2QFY17 net loss narrowed to RM24.8 mln, from RM60.8 mln recorded in the previous corresponding quarter, mainly due to unrealised foreign exchange gains. Revenue for the quarter, however, declined 72.6% Y.o.Y to RM37,000.

• For 1HFY17, cumulative net loss narrowed to RM30.9 mln, from a net loss of RM118.6 mln in the previous corresponding period. Revenue for the period added 71.7% Y.o.Y to RM0.4 mln. (The Edge Daily)

• Tien Wah Press Holdings Bhd’s Australian unit will be ceasing its remaining printing business, which it expects to impact its earnings for the current financial year ending 31st December 2017. As a result of the one off redundancy cost and impairment loss on plant and machineries to be incurred, there will be a reduction of RM15.8 mln to consolidated earnings, and a decline of 11.0 sen earnings per share and net assets per share.

• The cessation of the Australian unit - Anzpac Services (Australia) Pty Ltd's printing business is part of the group's restructuring of its production footprint to improve strategic positioning and reduce operating costs in the longer term. (The Edge Daily)

• Berjaya Sports Toto Bhd’s (BToto) wholly-owned subsidiary, Sports Toto Malaysia Sdn Bhd, plans to issue bonds to raise up to RM800.0 mln. The medium term notes (MTN) programme has been accorded a preliminary AA- or “stable” rating by the Malaysian Rating Corp Bhd (MARC) and will have tenure of up to 15 years.

• The capital raised will be used to refinance existing borrowings, defray issuance expenses, and to finance general corporate purposes. (The Edge Daily)  

Source: Mplus Research - 16 Jun 2017