• The FBM KLCI (+0.2%) extended its gains for the sixth consecutive session, lifted by gains on selected heavyweights. The lower liners however, slipped into the red – led by the FBM Ace (-1.3%), FBM Small Cap (-0.3%) and FBM Fledgling (-0.7%) indices, while the broader market follow suit with the exception of the Construction (+0.2%), Trading/Services (+0.1%) and Finance (+0.2%) sub-sectors.

• Market breadth continued to be downward pressured as losers outweigh winners on a ratio of 516-to-363 stocks. Traded volume gained 7.2% to 2.07 bln, amid extended profit-taking in the lower liners.

• Major key-index movers on Tuesday include Maybank (+10.0 sen), CIMB (+8.0 sen), Petronas Gas (+6.0 sen), Genting (+4.0 sen) and Hap Seng Consolidated (+4.0 sen). Meanwhile, other broader market charttoppers were Pentamaster (+20.0 sen), PLB Engineering (+16.0 sen), Kossan Rubber Industries (+15.0 sen), JF Technology (+12.0 sen) and Malaysia Airport Holdings (+10.0 sen).

• On the other side of the trade, broader market constituents like Petron Malaysia (-41.0 sen), Malaysia Smelting Corporation (-32.0 sen), Aeon Credit Service (-24.0 sen), KESM Industries (- 22.0 sen) and Heineken Malaysia (-18.0 sen) declined. Meanwhile, BAT (-16.0 sen), AmBank (-11.0 sen), Genting Malaysia (-6.0 sen), Petronas Dagangan (- 6.0 sen) and KLCC (-5.0 sen) weighed on Bursa’s Main Board.

• Asian equities climbed as investors digested regional economic data and gains in O&G stocks. The Nikkei, however, lost 0.3% - dragged down by real estate and healthcare-related stocks, albeit slightly offset by energy counters. The Shanghai Composite index (+0.1%) meanwhile, clawed back earlier losses following lower-than-expected Chinese trade data and the Hang Seng index notched a 0.6% gain in anticipation of a recovery in Hong Kong’s economy, buoyed by rising domestic spending. ASEAN stockmarkets meanwhile, closed mixed.

• Wall Street retreated overnight, amid muted trading after renewed concerns over the rising geopolitical tensions between U.S. and North Korea reverberated through the stockmarkets. The Dow (-0.2%) snapped nine days of winning streak to close in the red, while the S&P 500 (-0.2%) declined, dragged down by materials-related stocks. The Nasdaq also lost 0.2%, closing just an inch above the 6,370.0 psychological levels.

• Earlier, major European bourses closed with shallow gains as investors side stepped lower-than-expected trade data from Germany and China, amid the weakness in the Euro. The FTSE (-0.1%) finished higher, although gains were capped by losses in Paddy Power Betfair (- 4.1%), on weaker quarterly revenue. The CAC and the DAX also advanced 0.2% and 0.3% respectively as the Euro softened following upbeat U.S. employment data.

The Day Ahead

• Once again, the gains on the key index was mostly superficial and on rotational plays amid a generally insipid domestic market environment where positive leads are still far and in between, which is largely reflected in the negative market breadth.

• Although the still weak market breadth could see the broader market and lower liners remaining on the wayside, there could still be upsides on the key index as it attempts to break out of the 1,780 level.

• Still, we think the gains will be minute as any buying is unlikely to be broad-based in and capped by the selective buying. Although we think there current upside still has some legs left, we think it would be difficult for the key index to sustain its run above the 1,780 level as valuations are tipping towards the expensive side.

Company Updates

• Hartalega Holdings Bhd‘s 1QFY18 net profit jumped 71.6% Y.o.Y to RM96.4 mln, from RM56.2 mln in the previous corresponding quarter, on the back of a 49.6% Y.o.Y surge in revenue to RM601.0 mln against RM401.8 mln in 1QFY17. The stellar growth in earnings was also attributed to higher ASPs, stronger U.S. Dollar, as well as increased operational efficiency. No dividend was declared by Hartalega for the quarter under review.

• Although Hartalega’s 1QFY18 results were within our estimates – accounting to 24.1% and 26.4% of our full year net profit at RM399.4 mln and revenue at RM2.28 bln respectively, we raised our earnings forecast for FY18 and FY19 to RM414.9 mln (+3.9%) and RM477.5 mln (+2.0%). The revised estimates were made on the basis of stronger earnings in store which will be supported by higher revenue contribution, in-tandem with increasing production capacity (+15.0%- 18.0% per annum), lower volatility as the Ringgit normalises and lower tax expense.

Comments

• Moving forward, Hartalega will stay firm on its progressive expansion plans, gradually adding capacity by commissioning two production lines per month (from Plant 4 of NGC), starting from August this year. The new plant is expected to be fully commissioned by 1Q2018 and will add approximately 3.9 bln pieces of gloves to production in FY18, in our view.

• Consequently, we reiterate our HOLD recommendation on Hartalega with a higher target price of RM7.30 (from RM7.05), after imputing higher sales volumes as the group ramps up production with the additional capacity from Plant 4 in FY18.

• We remain sanguine that the additional capacity churned out by the group can be sufficiently absorbed by the market, with demand for rubber gloves expected to grow around 8.0% to 10.0% per year. We also believe that Hartalega will continue to be a market leader in the nitrile glove segment (despite rising nitrile players), due to its efficient cost management, production efficiency and consistent product quality.

• Our target PER of 29.0x is at a premium to its peer’s average of 22.0x on its revised FY18 EPS of 25.2 sen (from 24.3 sen previously) due to: (i) Hartalega’s concrete position as the global market leader in the nitrile glove segment, (ii) superior operational efficiency in terms of production speed and the lower number of workers per glove output, as well as (iii) solid fundamentals where it commands the highest net profit margin vs. its peers.

Company Briefs

• XiDeLang Holdings Ltd is set to receive an original design manufacturer (ODM) production orders worth about RM133.8 mln following the signing of a Memorandum of Collaboration (MoC) with YeLi International Ltd. The MoC is valid for 24 months and served as a framework agreement for both parties. YeLi International specialises in high- end footwear products. (Bernama)

• Berjaya Assets Bhd (BAssets) is currently in talks with an Asian automotive brand to manufacture and assemble its cars under BAsset’s unit, Oriental Assemblers Sdn Bhd. Back in June 2016, Oriental Holdings Bhd announced the disposal of its car assembly and automotive parts manufacturing unit, Oriental Assemblers Sdn Bhd to Berjaya Assets Bhd for RM32.5 mln. (The Star Online)

• Mesiniaga Bhd’s 2Q2017 net profit rose 32.5% Y.o.Y to RM2.1 mln on higher topline coupled with cost rationalisation exercise. Revenue for the quarter gained 11.0% Y.o.Y to RM60.2 mln.

• For 1H2017, cumulative net profit added 73.8% Y.o.Y to RM3.0 mln. Revenue for the period improved marginally by 0.6% Y.o.Y to RM104.4 mln. (The Star Online)

• Tien Wah Press Holdings Bhd’s (TWPH) 2Q2017 net loss stood at RM14 5 mln vs. a net profit of RM6.1 mln in the previous corresponding quarter, impacted by the cessation of its Australia’s printing operations, whereby the group recorded one-off redundancy expenses of RM20.3 mln and an impairment loss of machinery of RM11.0 mln. Revenue for the quarter, however, grew 34.0% Y.o.Y to RM108.5 mln.

• For 1H2017, cumulative net loss stood at RM10.3 mln vs. a net profit of RM218.9 mln in the previous corresponding period. Revenue for the period improved 33.8% Y.o.Y to RM218.9 mln. (The Star online)

• Minetech Resources Bhd has bagged a RM16.3 mln subcontract for work at a Mass Rapid Transit 2 (MRT2) station. The group received the Letter of Acceptance from CHEC Construction (M) Sdn Bhd for the construction, completion, testing, commissioning, care and maintenance of Sentul West Station and Escape Shaft 1 for a period of 25 months. (The Edge Daily)

• Seacera Group Bhd has signed a Memorandum of Understanding with Teras Sari Resources Sdn Bhd to jointly undertake work for the Karak water supply project in Bentong, Pahang. A joint venture between the two companies will be set up with Seacera holding a 51.0% stake and the remaining 49.0% held by Teras. (The Edge Daily)

• ML Global Bhd has bagged a demolition and reconstruction works contract from Menteri Besar Selangor Incorporated (MBI Selangor) worth RM38.0 mln. The contract is for demolition work on existing structures and re-construction works for a proposed development project for MBI Selangor, comprising 203 units of double-storey terrace houses in Ijok. The construction and completion of the contract will take 78 weeks and is scheduled to commence in August 2017 and is expected to be completed in February 2019. (The Edge Daily)  

Source: Mplus Research - 9 Aug 2017