• Despite lingering mostly in the negative territory, the FBM KLCI (+0.2%) managed to claw its way higher to close at its intraday high at 1,759.16 pts as the key index bucked the negative market sentiment across its key regional peers. The lower liners ended mostly higher as the FBM Small Cap and FBM Fledgling added 0.4% and 0.3% respectively but the FBM ACE slipped 0.8%. Sector wise, the Technology sector (-0.1%) was the sole decliner in the broader market.

• Market breadth turned positive with 436 gainers ahead of 384 losers. Traded volumes recovered 8.4% with 1.86 bln shares exchanging hands, buoyed by the more positive market sentiment.

• BAT (+28.0 sen) topped the big board advancers list, followed by Petronas Gas (+14.0 sen), Genting Malaysia (+10.0 sen), Petronas Dagangan (+8.0 sen), PPB Group (+8.0 sen) and Westports (+8.0 sen). Notable gainers on the broader market were TAHPS Group (+30.0 sen), Penta (+25.0 sen), Aluminium Company of Malaysia (+18.0 sen), Vitrox (+14.0 sen) and Heng Yuan (+11.0 sen).

• Notable decliners on the key index were Hong Leong Financial Group (-8.0 sen), Astro (-5.0 sen), DiGi (-3.0 sen), Sime Darby (-2.0 sen) and IOI Corporation (-1.0 sen). Key decliners on the broader market include consumer products stocks were Nestle (-62.0 sen) Ajinomoto (-42.0 sen) and Carlsberg (-14.0 sen), while United Plantations and UMS Holdings shed 46.0 sen and 20.0 sen respectively.

• Asia benchmark indices retreated as the Nikkei fell 0.2%, dragged down by the firmer Japanese Yen against the Greenback. The Shanghai Composite (- 0.2%) snapped a streak of three sessions of gains on weakness on financial shares, while the Hang Seng Index declined 0.1%. Asean indices, meanwhile, closed mostly lower.

• Wall Street ended lower with the Dow falling 0.2% last Friday despite General Electric (-2.9%) reported stronger-thanexpected corporate earnings, but revenue fell short of expectations. On the broader market, both the S&P 500 and Nasdaq declined 0.04% each as the former was dragged down by the weakness in industrial and energy stocks.

• European benchmark indices also retreated after the Euro Currency surged against the US Dollar. The FTSE (-0.5%) CAC (-1.6%) DAX (-1.7%) all ended lower marking their worst performance in three weeks. Meanwhile, International Monetary Fund agreed to loan US$1.80 bln to Greece to fund its reform plans.

The Day Ahead

• Although the key index managed to end the week on a positive note, the gains were superficial and not reflective of the generally insipid market undertone. Therefore, the sideway trend on Bursa Malaysia remains in force and we see the key index remaining within the 1,750 and 1,760 levels for longer.

• We think the market will be left in check amid the continuing toppish market conditions as most stock valuations remain stretched, thus providing fewer outright buying impetuses. At the same time, the broad market sentiments are also staying on the stale side, thus fresh buying is likely to stay muted. Under the prevailing market environment, we expect the consolidation trend to continue for the foreseeable future.

• Similar conditions could prevail among the lower liners and broader market shares as the buying interest is still selective.

COMPANY UPDATE

• V.S. Industry Bhd (VSI) has announced that its 43.5%-owned Hong Kong-listed associate, VS International Group Ltd (VSIG) has proposed a one-for-four rights issue of a minimum 459.95 mln shares to a maximum of 497.90 mln shares, to raise at least HK$105.8 mln (RM58.1 mln).

• The rights issue will be priced at HK$0.23 apiece and the proceeds will be used to pare VSIG’s borrowings (HK$35.0 mln), expand production and storage capacity (HK$44.0 mln) and to fund general working expenses.

• Subsequently, VSI is planning to subscribe up to 200.0 mln shares (or 43.5%) of the issued rights for HK$46.0 mln (RM25.3 mln) via borrowings. The group has also agreed to underwrite all rights shares not subscribed by other shareholders.

Comments

• We are sanguine of the aforementioned development as it will propel VSI to greater heights, alongside VSIG which is ramping up its capacity and efficiency to cater to potential new contracts in the near term. Based on a minimum scenario, we expect VSI to pay about RM25.3 mln to fully subscribe its entitled portion, which will be financed by borrowings.

• Consequently, we do not foresee a significant impact arising from the additional borrowings, which will result in a marginal increase (of less than 5.0%) in finance cost in FY18. After tweaking our forecast to include the additional RM25.3 mln, VSI’s net gearing will remain on a low side (at less than 30.0%) and thus, we maintain our BUY recommendation on VSI with an unchanged target price of RM2.35 that was derived by ascribing an unchanged PER of 15.5x to its marginally lower FY18 diluted EPS of 15.1 sen (from 15.2 sen, after including higher interest expense).

• The ascribed target PER is about a 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..

• We also note that there will be no change to the group’s shareholdings in VSIG (about 43.5%), although VSI’s stake in the latter could rise to a maximum of 52.9% should the remaining shareholders choose to forfeit their subscription rights, which are unlikely, in our view.

Company Briefs

• Cycle & Carriage Bintang Bhd's 2Q2017 net profit more than halved to RM9.0 mln, compared toRM19.7 mln a year earlier, dragged down by lower revenue and higher interest cost on borrowings. Revenue for the quarter was also down 15.9% Y.o.Y to RM355.4 mln, from RM422.8 mln in 2Q2016.

• Meanwhile, cumulative 1H2017 net profit plunged by 68.2% Y.o.Y to RM9.3 mln, from RM29.2 mln a year ago, while revenue dropped 4.0% Y.o.Y to RM708.2 mln, from RM737.9 mln.

• TRC Synergy Bhd's wholly-owned subsidiary, TRC (Aust) Pty Ltd (TRCA) is disposing a freehold land measuring 3,621 sq. m. in Melbourne, Australia for AU$9.7 mln (about RM32.2 mln).

• The proceeds will be used to fund impending development activities by TRCA and/or to finance payment of bank borrowings, working capital as well as land-related expenses of TRCA. The proposed land sale is also expected to give it a net gain on disposal of about RM4.4 mln. (The Edge Daily)

• Cahya Mata Sarawak Bhd (CMS) has appointed Datuk Isaac Lugun and Goh Chii Bing as its Group Chief Corporate Officer and Group Chief Operating Officer respectively, while Datuk Richard Curtis will retire from his role as Group Managing Director on 31st December, 2017.

• Subsequently, Datuk Richard will stay on as a Non-Independent Non-Executive Director until the end of 2018. Mr. Goh and Datuk Isaac hold about 9.3% and 0.47% stakes in CMS respectively. (The Star Online)

• Sapura Resources Bhd is partnering Lufthansa Technik AG to set up a maintenance, repair and overhaul (MRO) service company, specialising in narrow and wide-body aircraft base maintenance.

• Both parties have signed a Memorandum of Understanding (MoU) to establish the company, which will primarily serve the Malaysian, South Asian and Southeast Asian markets and explore feasible business models and structures, as well as be operated and governed as a base maintenance facility within the Lufthansa's existing base maintenance network. (The Star Online)

• Boustead Heavy Industries Corp Bhd‘s (BHIC) 51.0%-owned unit, BHIC AeroServices Sdn Bhd has secured a three-year-and-eight-day extension to an original contract bagged in 2014 from the government to maintain helicopters for the Royal Malaysian Air Force for RM215.0 mln.

• The remaining 30.0% and 19.0% stake in BHIC is held by Prestige Pillar Sdn Bhd and Airbus Helicopters Malaysia Sdn Bhd respectively. (The Edge Daily)
   
• Landmarks Bhd is selling its 20.0% equity stake in MSL Properties Sdn Bhd to Singapore's MCL Land Ltd for RM87.4 mln. The net proceeds amounting to RM82.9 mln will be used for the group's capital expenditure and working capital. The group is also expecting full utilisation within 24 months from the receipt of the proceeds. (The Star Online)

• Property developer Malaysia Pacific Corp Bhd (MPCorp) was allowed a sixmonth extension (until 31st December 2017) to submit its regularisation plan to the regulators. (The Edge Daily)

• UEM Sunrise Bhd has launched its third development in Melbourne, Australia known as Mayfair — a luxury residential project with a gross development value (GDV) of RM1.1 bln.

• The development features 158 high-end apartments located on Melbourne's premier boulevard, 412 St Kilda Road, and will be different from the company's two previous projects there. Consequently, the group expects a 50.0% take-up rate for the new project by year-end. (The Star Online)

• SKP Resources Bhd has proposed a final single-tier dividend of 4.15 sen per share in FY17, up 18.6% from 3.5 sen apiece in FY16. The entitlement and payment dates will be announced in due course. (The Edge Daily)

• Ipmuda Bhd has signed a MoU with New Zealand sanitary ware company, Methven Ltd to sell Methven's products in Malaysia. The MoU is valid for six months from 1st July 2017 until year end. (The Edge Daily)

• Encorp Bhd, which inked preliminary agreements with several companies to last year develop its 641-ac. landbank in Melaka, has aborted one of them.

• The contract with Kean Leng Construction Sdn Bhd will be terminated after the MoU previously inked, expires on 31st July 2017 as both parties have no intention of further extension to the aforementioned MoU. (The Edge Daily)  

Source: Mplus Research - 24 Jul 2017