• The FBM KLCI erased earlier gains after a choppy trade amid selling pressure on banking heavyweights. Most of the lower liners, mainly the FBM Fledgling (-0.6%) and the FBM Small Cap (-0.3%) declined, although the FBM Ace (+0.7%) opposed the general weak sentiment to finish in the green. Meanwhile, only two-of-ten sub-sectors ended yesterday positively.

• Market breadth was negative, as losers outweighed the winners on a ratio of 556- to-294. Traded volumes gain 3.8% to 1.73 bln shares – led by persistent foreign outflows amid a hawkish U.S. Federal Reserve outlook.

• Major banking stocks like CIMB (-14.0 sen), Hong Leong Bank (-8.0 sen) and RHB Bank (-5.0 sen) led the Main Board lower, followed by Axiata (-5.0 sen) and IJM (-5.0 sen). Broader market losers were Aeon Credit Service (-22.0 sen), Malaysian Pacific Industries (-22.0 sen), LPI Capital (-18.0 sen) and Allianz (-14.0 sen). Meanwhile, Ajinomoto (-24.0 sen) extended its profit-taking activities for the eighth consecutive session.

• United Plantations (+20.0 sen), KESM (+14.0 sen), Batu Kawan (+10.0 sen) and Malaysia Airports Holdings (+8.0 sen) outperformed its peers on the broader market, while Kossan ended 11.0 sen higher after a major investment bank raise its rating. Key-index counters that bucked the general weakness in the local bourse to close higher were BAT (+50.0 sen), Petronas Chemicals (+10.0 sen), IHH Healthcare (+7.0 sen), Genting (+5.0 sen) and Genting Malaysia (+4.0 sen).

• Japanese equities rose 0.4%, lifted by gains in exporters as the Yen fell to its weakest levels since March, while the Hang Seng index advanced 1.6% with all of its nine sectors in the positive territory. The Shanghai Composite index, however, lost 0.3%, dragged down by the weakness in materials-related stocks. ASEAN stockmarkets were mostly higher yesterday.

• U.S. equities inched into the positive territory yesterday despite renewed political controversies surrounding President Donald Trump. The Dow barely closed in the green, recovering from sharp losses. Meanwhile, financial-related stocks weighed on the S&P 500 (-0.1%), although the Nasdaq (+0.3%) finished higher.

• Key European bourses were painted red on Tuesday amid volatility in crude oil prices and losses in F&B stocks. The FTSE lost 0.6%, weighed down by subdues business sentiment in the U.K., while the CAC (-0.5%) declined to close slightly above the 5,140.0 psychological mark. The DAX ended in the red as well, after falling from intra-day high.

The Day Ahead

• Sentiments on Bursa Malaysia remain weak amid the continual lack of catalysts and persistent selling by foreign funds over the past few sessions. This has left the FBM KLCI oversold following its streak of downtrend, but there remains little near term support on the index heavyweights as yet, given that many heavyweights are fairly priced.

• Still, we think the market is due for a rebound to adjust from oversold, but the recovery may be meek with the fewer leads and toppish valuations. Therefore, the 1,760 level will be the immediate hurdle, followed by the 1,765 level. In the meantime, there are still few signs of a rebound as yet and the downside bias is maintained for now that could see the key index veer to the 1,750 support level. ? The selling pressure on the lower liners and broader market shares are also still prevalent and this could sustain for longer as their consolidation trend continues after many stocks have attained strong gains in 1H2017.

Company Briefs

• Boustead Heavy Industries Corp Bhd’s (BHIC) subsidiary, Boustead DCNS Naval Corp Sdn Bhd has been hit with liquidated damages claim totalling RM147.7 mln from the Defence Ministry with regards to its Scorpene submarines support contract. Boustead DCNS, which is 60.0% owned by BHIC and 40.0% by French naval systems builder DCNS SA, received a letter from the Ministry claiming compensation for the breach of obligations under the contract to undertake in-service support (ISS) for two Royal Malaysian Navy (RMN) Scorpene submarines.

• The Government had awarded the ISS job to Boustead DCNS on 12th August 2010. The Government subsequently renewed the ISS contract which was to expire in late 2015 until May 2017 for €25.0 mln (RM122.4 mln). Earlier this year, the Boustead group also bagged a RM1.17 bln contract from the Defence Ministry to supply four littoral mission ships for the RMN. (The Star Online)

• ML Global Bhd has bagged a RM68.1 mln subcontract from Samling Ekovest JV Sdn Bhd (SEJV) to undertake piling works in the Bau–Lundu stretch and the KSR Section in Sarawak under the Pan Borneo Highway project. With the project in hand, ML Global’s current outstanding order book stands at RM2.05 bln. The construction period is for 20 months, with completion by 31st October 2018. (The Edge Daily) ? Sealink International Bhd has bagged a charter contract for one of its safety standby vessels and is selling two ageing vessels for combined proceeds of RM52.0 mln. The disposal of the vessels is part of the group's strategy to continually modernise and upgrade its fleet of vessels. The charter is for three years, commencing in 2Q2017

• Meanwhile, Sealink plans to use the proceeds from the sale of vessels for working capital purposes. Currently, Sealink operates a fleet of 34 vessels. It also owns two shipyards in Miri, Sarawak. (The Edge Daily)

• UPA Corp Bhd has reported that the government, via the Federal Territory Lands and Mines Office, has notified the firm that it would be awarded RM32.7 mln for the compulsory acquisition of three plots of land it owns. The compulsory acquisition will pave way for the government to construct the second mass rapid transit line, which will be traversing from Sungai Buloh to Putrajaya via Serdang. (The Edge Daily)

• Kobay Technology Bhd announced that a RM2.9 mln suit has been filed against its wholly-owned unit over a dispute concerning the completion of residual work under a purchase order. The suit against its unit Bend Weld Engineering Sdn Bhd (BWE) was filed by NGL Tech Sdn Bhd on 10th July 2017.

• In response, BWE counter-sued NGL for a declaration that it is entitled to payment from NGL for work done and that NGL is not entitled to back-charge BWE for work that NGL took over from BWE. BWE is claiming RM1.4 mln for work that it has completed. (The Edge Daily)  

Source: Mplus Research - 12 Jul 2017