• The FBM KLCI (-0.4%) gave up all its previous session’s gains last Friday as the local bourse fell 0.5% W.o.W. The weakness was mainly due to the selloff in selective index heavyweights that reported weaker-than-expected corporate earnings, coupled with the foreign fund outflow. The lower liners also closed mostly lower, while the Properties (+0.2%) and Mining (+4.5%) sector outperformed the negative broader market.

• Market breadth turned negative as decliners thumped advancers on a ratio of 546-to-323 stocks. Traded volumes shrank 6.0% to 2.00 bln shares as investors retreated to the sidelines amid the negative market sentiment.

• Genting Malaysia (-23.0 sen) topped the big board decliners list after reporting a weak set of quarterly earnings while other big board losers include IJM (-11.0 sen), Sime Darby (-10.0 sen), Petronas Gas (- 10.0 sen) and IHH Healthcare (-10.0 sen). Notable decliners on the broader market were Ajinomoto (-RM1.04), Petron (-31.0 sen), Southern Steel (-20.0 sen), Latitude Tree (-13.0 sen) and Kim Hin (-12.0 sen).

• Amongst the biggest gainers on the broader market were like Panasonic (+50.0 sen), United Uli-Corporation (+40.0 sen), Success Transformers (+23.0 sen), Far East (+20.0 sen) and Heineken (+20.0 sen). Meanwhile, Hong Leong Financial Group (+24.0 sen), Petronas Dagangan (+4.0 sen), KLK (+4.0 sen), Public Bank (+2.0 sen) and Tenaga (+2.0 sen) were amongst the biggest advancers on the FBM KLCI.

• Asian benchmark indices advanced last Friday as the Nikkei added 0.5%, but recorded its sixth straight weekly loss, falling 0.1% W.o.W. The Shanghai Composite (+1.8%) closed above the 3,300 psychological level amid the upbeat corporate earnings, while the Hang Seng Index jumped 1.2%. ASEAN stockmarkets, meanwhile, ended mostly higher.

• U.S. stockmarkets rebounded last Friday as the Dow rose 0.1%, but coming off its intraday high after the latest central bankers meeting offered few clues on future monetary policy moves. On the broader market, the S&P 500 added 0.2% - led by the energy sector (+0.6%) after Hurricane Harvey rattled oil refineries’ production in Texas.

• Earlier, European benchmark indices – the FTSE (-0.1%), CAC (-0.2%) and DAX (- 0.1%), all erased their intraday gains after the Euro currency rose to its highest level since January 2015 against the U.S. Dollar. Meanwhile, Germany’s 2Q2017 GDP rose 2.1% Y.o.Y – in line with economists’ expectations.

The Day Ahead

• The market’s near term outlook is still largely uncertain amid the lack of direction from both overseas and local sources. As a result, we see the directionless trading pattern continuing over the near term as the key index attempts to find support around the 1,770 level. Still, we expect the downside pressure to remain after last Friday’s weakness that has also compounded the market’s uncertainties.

• Under the prevailing environment, we think the key index will linger within a tight trading range of between 1,760 and 1,770 levels until fresh trading direction emerges. We also see market interest remaining on the moderate side as market players reassess their next move.

• Interest on the lower liners and broader market shares are also likely to stay subdued after last Friday’s weakness with retail players likely to stay on the sidelines in the shortened trading week.

COMPANY UPDATES

• Protasco Bhd’s 2Q2017 net profit contracted 45.0% Y.o.Y to RM7.9 mln on lower contributions from its two core business. Revenue for the quarter slipped 44.5% Y.o.Y to RM219.8 mln, mainly on slower construction works and deferment of property launches in view of the soft property market.

• For 1H2017, cumulative net profit slumped 59.6% Y.o.Y to RM11.2 mln. Revenue for the period decreased 32.8% Y.o.Y to RM351.9 mln. Both the reported earnings and revenue only amounted to 28.1% and 36.1% of our previous forecast of RM39.8 mln and RM974.6 mln respectively.

Comments

• Following the weaker-than-expected 2Q2017 results, we trimmed our earnings forecast for 2017 and 2018 by 13.3% and 12.1% respectively, after lowering our maintenance concession work flow assumptions and slower progress in its construction activities.

• However, we maintain our BUY recommendation with a lower target price of RM1.20 (from RM1.25). We believe that the group’s earnings should recover moving into 2H2017 and 2018, premised to the acceleration of the execution of several construction contracts, improved works from the concession division and new property development launches in 2H2017.

• We arrive at our target price on a sum-ofparts basis by ascribing an unchanged target PER of 11.0x to its 2018 construction earnings as well as a target PER of 8.0x (unchanged) to its 2018 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.

• AWC Bhd has secured another facilities management contract from the Public Works Department (JKR) worth RM31.7 mln. The contract is to manage the facilities of a building complex in Putrajaya for the Ministry of Communications and Multimedia Malaysia. The five-year contract will commence from 1st September 2017 until 31st August 2022 and covers all the blocks utilised and occupied by the ministry.

Comments

• The total IFM contracts, after including the above contract for the Ministry of Communications and Multimedia Malaysia building, brings the total value of the IFM projects secured in August to about RM107.0 mln (from three projects). The new contract also falls within our earlier estimate and hence, there is no change to our earnings estimates. Consequently, we maintain our BUY recommendation on AWC with an unchanged target price of RM1.20.

• Our target price is derived from ascribing an unchanged target PER of 14.0x to its FY18 EPS of 8.7 sen. The targeted PER is based on a discount to the its nearest competitor UEM Edgenta Bhd, due to the AWC’s smaller market capitalisation.

Company Briefs

• Tan Chong Motor Holdings Bhd’s 2Q2017 net loss expanded by 58.0% Y.o.Y to RM23.0 mln, from RM14.6 mln a year ago – due to weaker demand for new vehicles, while its quarterly revenue shed 9.0% Y.o.Y to RM1.2 bln, from RM1.31 bln in the previous corresponding period. Despite the weaker earnings, the group has declared an interim dividend of 1.0 sen per share.

• Consequently, 1HFY17 net loss widened 13.0% Y.o.Y to RM58.3 mln, from RM51.8 mln, on the back of lower revenue contribution which dropped 20.0% Y.o.Y to RM2.19 bln, from RM2.73 bln previously. (The Edge Daily)

• Westports Holdings Bhd has secured an approval-in-principle from the government to expand its container terminal facilities in Port Klang from the current nine to nineteen. The group will continue to discuss with the government on the terms and conditions for the expansion project that could push total handling capacity to 30.0 mln twentyfoot equivalent units (TEUs) per annum. (The Star Online)

• Icon Offshore Bhd reported a 2Q2017 net loss of RM6.6 mln, from a net profit of RM617,000 in the same period last year, attributed to an increase in consumables and spare parts costs. Revenue, meanwhile, fell 6.8% Y.o.Y to RM54.9 mln, from RM58.9 mln in 2Q2016.

• The cumulative 1H2017 net loss expanded to RM13.2 mln, compared to RM4.4 mln in 1H2016, while revenue decreased by 12.9% Y.o.Y to RM96.3 mln, from RM110.7 mln a year earlier. (The Edge Daily)

• Padini Holdings Bhd registered a 6.0% Y.o.Y increase in its 4QFY17 earnings to RM39.5 mln, compared with RM37.4 last year, on the back of higher sales from its existing and new stores. Revenue for the quarter also jumped 32.0% Y.o.Y to RM460.5 mln, from RM348.9 mln. Subsequently, the group proposed a first interim dividend of 2.5 sen per share, payable on 29th September 2017.

• Full year net profit also expanded by 15.0% Y.o.Y to RM157.4 mln, compared with RM137.4 mln in FY16, in-tandem with a 21.0% hike in revenue to RM1.57 bln, from RM1.30 bln last year. (The Edge Daily)

• AirAsia Bhd is disposing its entire 50.0% equity stake in Asian Aviation Centre of Excellence (AACE) for US$100.0 mln (RM429.3 mln) to its joint-venture (JV) partner, CAE International Holding Ltd. The proposed sale is in-line with its plan to regularly dispose its non-core investments and will realise a gain on disposal of RM304.8 mln in 4Q2017. (The Star Online)

• Bumi Armada Bhd returned to the black with a 2Q2017 net profit of RM116.6 mln, from a net loss RM518.3 mln a year earlier, as revenue increased to RM694.4 mln, from RM402.9 mln in the same period last year.

• Consequently, the group also posted a 1H2017 net profit of RM164.7 mln, from a net loss of RM494.9 mln, alongside revenue which gained 30.8% Y.o.Y to RM1.09 bln, from RM833.6 mln in the preceding year. (The Star Online)

• D&O Green Technologies Bhd is purchasing an additional 12.5% (or 13.7 mln shares) equity stake in Dominant Opto Technologies Sdn Bhd from Thames Electronics Sdn Bhd and Cambrew Asia Ltd for RM122.6 mln. Following the proposed acquisition, D&O’s total shareholding in Dominant will increase to 74.3% (from 61.8%). (The Edge Daily)

• Encorp Bhd has announced the appointment of former banker Datuk Syed Mohamed Syed Ibrahim as its Chairman, replacing Tan Sri Mohd Isa Abdul Samad, who resigned in mid-August amid an anti-graft probe over the purchase of a luxury hotel in Kensington, London.

• Datuk Syed’s appointment came following a series of nomination by the controlling shareholder, Felda Investment Corp Sdn Bhd (FIC), a whollyowned investment arm of the Federal Land Development Authority (Felda). In addition to chairing FIC, Datuk Syed is also the President and Executive Director of Iskandar Waterfront Holdings Sdn Bhd. (The Star Online)

• UMW Oil & Gas Corp Bhd (UMW-OG) foresees the utilisation rate across its seven jack-up drilling rigs to remain high in 2018, despite the impending expiration of some contracts by end- 2017. To recap, the group's idle UMW Naga 5 jack-up rig commenced an RM113.0 mln contract with Repsol Malaysia last week, bringing the overall utilisation rate of its assets to 100.0% by September, from 68.0% at the end of June. (The Edge Daily)

• Sime Darby Bhd’s 4QFY17 net profit declined 53.4% Y.o.Y to RM571.0 mln, from RM1.22 bln last year, dragged down by impairments and provisions of RM605.0 mln made across its divisions in the quarter under review. Revenue, however, grew 6.1% Y.o.Y to RM8.2 bln, from RM7.7 bln.

• The record impairment was made at the group level to provide a clean sheet for its plantation and property arms — Sime Darby Plantation Bhd and Sime Darby Property Bhd, which is slated to be listed on Bursa Malaysia by November this year.

• For FY17, net profit inched-up to RM2.44 bln from the RM2.42 bln a year ago, while revenue gained 5.5% Y.o.Y to RM31.09 bln, from RM29.45 bln in FY16.

The earnings were dampened by a full-year impairment of RM684.0 mln, after the two aforementioned units has been listed as 'discontinuing operations'. Consequently, the group now has three divisions under its wing, mainly the industrial, motors and logistics businesses. (The Edge Daily)  

Source: Mplus Research - 28 Aug 2017