• The FBM KLCI (-0.3%) extended its losses to close at an intraday low of 1,760.03 pts yesterday on a selloff in selective banking heavyweights after the key index lingered mostly in the negative territory. Amidst the mixed broader market, the lower liners – the FBM Small Cap (-0.4%), FBM Fledgling (-0.4%) and FBM ACE (-1.3%), all closed in the negative territory.

• Market breadth stayed negative as decliners outstripped advancers on a ratio of 586-to-309 stocks. Traded volumes, however, added 17.7% Y.o.Y to 1.94 bln shares as selling amongst the lower liners intensified.

• Public Bank (-26.0 sen) topped the big board decliners list, followed by Petronas Gas (-22.0 sen), BAT (-18.0 sen), Maybank (-10.0 sen), Hong Leong Bank (-10.0 sen) and Genting (-8.0 sen). Amongst the biggest decliners on the broader market include Bursa Malaysia (-26.0 sen), MNRB (-19.0 sen), LPI Capital (-16.0 sen) and Allianz (-16.0 sen). Lotte Chemical tumbled 23.3% after reporting a disappointing set of quarterly earnings.

• Consumer products stocks like Dutch Lady (+36.0 sen), IQ Group (+28.0 sen) and Ajinomoto (+22.0 sen) topped the broader market winners list, while Heng Yuan and Pos Malaysia added 96.0 sen and 18.0 sen respectively. Meanwhile, notable advancers on the key index were Hong Leong Financial Group (+12.0 sen), KLK (+10.0 sen), Hap Seng (+9.0 sen), Genting (+8.0 sen) and Westports (+6.0 sen).

• Japanese equities extended their losses as the Nikkei (-0.2%) declined after the firmer Japanese Yen against the Greenback overwhelmed the upbeat corporate earnings. The Hang Seng Index (+1.3%) managed to re-claim its position above the 27,000 psychological level as share buyback activities rose to its highest level since 2008, while the Shanghai Composite (+0.6%) extended its gains after the Purchasing Managers’ Index for July 2017 at 51.4 continues to show expansion over the past one-year period. ASEAN indices, meanwhile, closed mixed.

• U.S. stockmarkets ended mixed overnight as the Dow (+0.3%) closed at a fresh record high level at 21,891.1 pts. On the broader market, both the S&P 500 (-0.1%) and Nasdaq (-0.4%) declined on weakness in technology shares, but both indices managed to chalk up 1.9% and 3.4% M.o.M gains in July.

• Despite the positive Eurozone’s unemployment data in June 2017 that fell to 9.1% - the lowest level since 2009, European benchmark indices ended mostly lower after erasing their intraday gains as the CAC and DAX fell 0.7% and 0.4% respectively after the Euro Currency continue to gain momentum against the Greenback. The FTSE, however, added 0.1%, lifted by gains in mining shares like Anglo American (+1.7%), BHP Billiton (+1.0%) and Antofagasta (+0.8%).

The Day Ahead

• Once again, a late selling spree left the key index tethering on the lower part of the 1,760-1,770 trading range. The lower-end to the month also leaves the key index on a weaker note with the downside bias now taking a firmer grip on market conditions and the recent market recovery is becoming undone.

• We think the key index will attempt to find near term support at around the 1,760 level, but it gives way the FBM KLCI could retreat back to the psychological support at the 1,750 level. On the upside, the 1,770 level remains the main resistance. ? Similar conditions are expected to prevail in the broader market as we see the lackluster trading conditions to continue amid the lack of fresh buying impetuses that will also keep most retail players on the sidelines.

Company News

• AWC Bhd has clinched a sub-contract for the maintenance of Blocks WP1 and WP2 of the Ministry of Foreign Affairs in Putrajaya, worth RM42.4 mln from the Public Works Department (JKR). The contract will commence from 1st August, 2017 to 31st July, 2022, covering all blocks utilised and occupied by the Ministry.

Comments

• The aforementioned contract falls within our FY18 orderbook replenishment target for AWC and thus, we reiterate our BUY recommendation on AWC with an unchanged target price of RM1.20. We continue to like AWC for its stable and recurring income from the integrated facilities management (IFM) division.

• Our target price is derived from ascribing an unchanged target PER of 14.0x to its FY18 EPS of 8.7 sen, which we think is justified due to its strong earnings growth potential – as reflected in its low PEG of 0.4x in FY17.

Company Briefs

• Lotte Chemical Titan Holding Bhd’s (LCT) 2Q2017 net profit plunged 72.0% Y.o.Y to RM113.6 mln, from RM404.0 mln last year, while revenue shaved off 11.0% Y.o.Y to RM1.78 bln, from RM1.99 bln in 2Q2016.

• The significantly weaker earnings were mainly attributed to lower sales volume due to unforeseen water interruption by Syarikat Air Johor (SAJ) in April 2017, which resulted in higher production costs, as well as lower sales during the festive holiday in June.

• Meanwhile, the group’s cumulative 1H2017 net profit declined 32.0% Y.o.Y to RM455.8 mln, compared to RM676.2 mln in the same period last year, while revenue was 7.0% Y.o.Y lower at RM3.69 bln, from RM3.99 bln. (The Edge Daily)

• Mudajaya Group Bhd clinched two contracts collectively worth RM151.4 mln from Petroliam Nasional Bhd (Petronas) to undertake procurement, construction and commissioning (PCC) works for the utilities, interconnecting and offsite (UIO) facilities of the refinery and petrochemical integrated development (Rapid) project in Pengerang, Johor. Both contracts were awarded by PRPC Utilities and Facilities Sdn Bhd, a subsidiary of Petronas.

• Texchem Resources Bhd’s 2Q2017 net loss widened to RM6.1 mln, from RM3.5 mln a year ago, dragged down by lower contribution in its industrial and restaurant divisions. Revenue for the quarter, however, gained 9.0% Y.o.Y to RM270.9 mln, from RM248.5 mln in 2Q2016.

• Similarly, cumulative 1H2017 net loss expanded by 16.7% Y.o.Y to RM6.7 mln against RM5.7 mln a year earlier, on the back of a RM5.3 mln closure costs incurred from the cessation of a business by a subsidiary, coupled with losses from new concept restaurants. Meanwhile revenue grew 7.2% Y.o.Y to RM541.9 mln, from RM505.3 mln last year. (The Edge Daily)

• Palette Multimedia Bhd is not diversifying into the traditional Chinese medicine industry, following its decision to terminate the acquisition of a 51.0% stake in Genopharma Sdn Bhd, as the latter’s current financial performance was below expectations.

• Recall that the group signed a term sheet with three individuals — Liao Chunhua, Liu Zhen and Tan Yi Wen — to acquire a 51.0% stake in Genopharma for RM1.5 mln on 24th November, 2016.

• The deal was supposed to be financed by the issuance of new shares of four sen each in the company at an issue price to be determined later. The vendors have also guaranteed a net profit of at least RM1.0 mln, RM1.5 mln and RM2.0 mln in FY17, FY18 and FY19 respectively.

• Separately, Palette has signed additional contracts with values exceeding RM18.0 mln, with associate companies of Russian telecommunications giant, RKSS Group for its digital cloud infrastructure and video/audio conference communication equipment. The contracts between Palette, Trade House Atlantis Ltd and CJSC Gollard will see Palette providing a system for additional deployment of its digital cloud platform in other locations in Russia to support mobile health, telemedicine and other Internetof-Things (IoT)-related applications. Palette will also support various cloud application software including mobile health cloud and network access management. (The Edge Daily)

• Berjaya Corp Bhd (BCorp) is aborting the proposed joint-venture (JV) to operate a new pharmacy chain with Australia-based CW Retail Asia Pty Ltd, although no reasons were given for the aforementioned decision.

• To recap, the group’s 80.0% indirectlyowned unit, Morning Charm Sdn Bhd had inked a 75:25 JV deal to own and operate community pharmacy stores and distribute pharmaceutical and nonpharmaceutical products with CW Retail in March last year.

• The proposed JV would have enabled BCorp to expand and strengthen its pharmacy distribution and retail businesses under the co-branded names, as well as make its foray into the pharmacy warehousing business sector. (The Star Online)

• United Plantations Bhd's 2Q2017 net profit jumped 51.7% Y.o.Y to RM109.8 mln, from RM72.4 mln, lifted by higher production, higher crude palm oil and palm kernel prices, as well as lower costs of production. Quarterly revenue also expanded 27.9% Y.o.Y to RM355.3 mln, from RM277.7 mln in 2Q2016.

• Meanwhile, its 1H2017 net profit soared 41.9% Y.o.Y to RM187.4 mln, from RM132.1 mln a year ago, in-tandem with a 36.7% Y.o.Y gain in revenue at RM734.5 mln, from RM537.3 mln in the previous corresponding period. (The Star Online)

• The Malaysia Economic Development Council (Mapem) has appointed ManagePay Systems Bhd (MPay) as partner and service provider for its Mapem/MPay Prepaid MasterCard programme for foreigners in Malaysia. The programme will allow MPay to provide foreigners with financial services, namely MPay Wallet mobile application for smartphones, physical MPay MasterCard prepaid cards, salary crediting programme and remittance services. (The Edge Daily)

• Sabah-based property developer WMG Holdings Bhd (WMG) is planning to launch RM1.3 bln of new projects postlisting via a reverse take-over (RTO) of Tekala Corporation Bhd (Tekala), although no timeline was given. The new projects, comprising both residential and commercial properties will be on its existing 44.1 ac. of land in Sabah and be financed via internallygenerated funds and bank borrowings.

• Currently, the group has a total undeveloped land bank of approximately 620 ac. of which 442 ac. is in Sandakan and the remaining 178 ac. in Kota Kinabalu.

• The group’s ongoing projects include Sejati Walk - a shopping mall with 343 shopping units and a commercial centre named Sri Indah Kondominium, which includes four blocks of 11-storey condominium totalling 480 units and a Mydin Hypermarket in Sandakan. (The Star Online)  

Source: Mplus Research - 1 Aug 2017