• Following North Korea’s firing of a missile over Japan, renewed geopolitical tensions sent the FBM KLCI (-0.5%) to erase all of its previous session’s gains. The negative sentiment was also in tandem with the weakness across its regional peers. Meanwhile, both the lower liners and broader market were splashed in red with the Technology sector (-1.4%) taking the heaviest beating in the latter.

• Market breadth stayed negative as decliners outstripped advancers on a ratio of 622-to-271 stocks. Traded volumes sank 15.6% to 1.50 bln shares amid the negative market sentiment.

• More than two-thirds of the key index components fell, led by Petronas Gas (- 30.0 sen), followed by Maybank (-14.0 sen), Hong Leong Bank (-14.0 sen), Genting (-12.0 sen) and AmBank (-12.0 sen). Amongst the biggest decliners on the broader market include MPI (-38.0 sen), Aeon Credit (-36.0 sen), Time dotCom (-26.0 sen), Dutch Lady (-20.0 sen) and Panasonic (-20.0 sen).

• On the other side of the trade, notable advancers on the the broader market were Heng Yuan (+40.0 sen), Heineken (+32.0 sen), Petron Malaysia (+31.0 sen), Bintulu Port (+14.0 sen) and Latitude Tree (+11.0 sen). Topping the gainers list on the big board were Genting Malaysia (+17.0 sen), BAT (+8.0 sen), IHH (+6.0 sen), KLCC (+3.0 sen) and Maxis (+3.0 sen).

• The renewed geopolitical tensions sent Asian benchmark indices mostly lower yesterday as the Nikkei slipped 0.5% after the safe haven Japanese Yen rose against the Greenback. The Hang Seng Index declined 0.4%, but the Shanghai Composite (+0.2%) extended its gains on gains in financial shares. ASEAN stockmarkets, meanwhile, ended mostly lower.

• U.S. stockmarkets recouped its intraday losses as the Dow gained 0.3% overnight after investors shook off the concerns over rising geopolitical tensions. On the broader market, the S&P 500 (+0.1%) advanced for the third straight session, while the Nasdaq gained 0.3% to close above the 6,300 psychological level.

• Earlier, European benchmark indices – the FTSE (-0.9%), CAC (-0.9%) and DAX (- 1.5%), all remain in the red for the third straight session - pressured by the strengthening in the Euro Currency against the U.S. Dollar. Notable decliners include insurance shares like Hiscox Ltd (-2.3%) and Swiss Re AG (-1.7%) as investor access the damage from Hurricane Harvey.

The Day Ahead

• Although the key index is finding support around the 1,760 level, the insipid market conditions are likely to keep a lid on its movement over the near term with most market players staying on the sidelines ahead of the extended weekend.

• The results reporting season is also coming to an end with few surprises and this will also leave market players with few convincing buys. Therefore, we expect the key index to be on a sideway-to-lower drift as market interest remains on the low side. The 1,760 level will remain the near term support, while on the upside, the 1,770 level is the near term hurdle.

• Similar conditions are expected to prevail among the lower liners and broader market shares as retail players are also likely to stay on the sidelines ahead of the Merdeka and Hari Raya Haji break.

Company Updates

• Kimlun Corporation Bhd’s 2Q2017 net profit declined 38.7% Y.o.Y to RM14.8 mln, mainly due to: (i) lower contribution form the construction segment as several projects secured in mid-2016 are at the early stages of completion, (ii) completion of delivery of tunnel lining segment (TLS) supply orders for Singapore’s MRT Thomson Line underground power transmission network in 2016, and (iii) the supply of segmental girder box (SGB) and TLS for the Klang Valley Mass Rapid Transit 2 (KV MRT2) will only pick up towards end-2017. Consequently, revenue for the quarter fell 20.9% Y.o.Y to RM194.8 mln.

• For 1H2017, cumulative net profit contracted 26.8% Y.o.Y to RM30.2 mln. Revenue for the period decreased 24.1% Y.o.Y to RM365.0 mln. The reported earnings came slightly below our expectations, accounting to 45.6% of our full year estimated net profit of RM66.2 mln. Meanwhile, the reported revenue also came slightly below expectation, accounting to 44.9% of our full year revenue forecast of RM812.6 mln.

Comments

• Despite 1H2017 earnings coming slightly below our forecast, we leave our earnings forecast unchanged as we think that the group’s earnings should pick-up in 2H2017, particularly towards end-2017 as several construction projects will be at the advance stages of billing, coupled with the higher contributions from the delivery of SGB orders for the KVMRT2 project.

• Hence, we reiterate our HOLD recommendation on Kimlun with an unchanged target price of RM2.30. Our target price is derived from ascribing an unchanged target PER of 11.0x to its 2018 construction earnings and PER of 6.0x (unchanged) to its manufacturing earnings, while its property development segment’s valuation remain unchanged at 0.6x its BV due to its relatively small-scale development projects.

• OCK Group Bhd’s 2Q2017 net profit added 9.6% Y.o.Y to RM6.0 mln, lifted by higher contribution from its telecommunication network services segment from the Myanmar venture, coupled with the consolidation of newly acquired South East Asia Telecommunication Holdings Pte Ltd (SEATH). Revenue for the quarter gained 4.6% Y.o.Y to RM11.9 mln.

• For 1H2017, cumulative net profit grew 16.8% Y.o.Y to RM10.7 mln. Revenue for the period climbed 17.3% Y.o.Y to RM225.8 mln. The reported earnings accounted to 32.3% of our previous full year estimated net profit of RM32.5 mln, while the reported revenue was at 42.7% of our previous estimated revenue forecast of RM528.6 mln.

Comments

• Despite the 2Q2017 results largely in line with our expectations as the first half results traditionally makes up just slightly above 30.0% of its full year earnings, we tweak our net earnings higher by 2.7% and 3.1% for 2017 and 2018 to RM33.4 mln and RM38.5 mln respectively to account for the higher tenancy ratio on its telecommunication towers in Myanmar and Vietnam. Consequently, we upgrade our recommendation on OCK to BUY (from Hold) with a higher target price of RM1.00 (from RM0.95).

• We adopt a sum-of-parts (SOP) approach as we valued its telecommunication network services and green energy & power solutions business segments on a discounted cash flow approach (key assumptions include a WACC of 9.0%, terminal growth rate of 1.5%) to reflect its ability to generate recurring revenues and steady earnings growth over the longer term. Meanwhile, we ascribe an unchanged 15.0x target PER to both its fully-diluted trading and mechanical & electrical engineering services businesses, based on their potential earnings contribution in 2018.

• AWC Bhd posted a 9.0% Y.o.Y fall in its 4QFY17 net profit to RM5.9 mln, from RM6.5 mln previously, despite a 13.1% Y.o.Y growth in revenue to RM86.0 mln, from RM76.0 mln in the previous corresponding period. The weaker earnings were mainly attributed to a slight margin compression in the IFM and environment divisions.

• For FY17, however, net profit jumped 26.1% Y.o.Y to RM21.6 mln, from RM17.1 mln in FY16 – due by improved performances across all divisions. Full year revenue also gained 19.2% Y.o.Y to RM296.1 mln, compared to RM248.5 mln a year ago. The group has also proposed a 1.0 sen per share final single-tier dividend, payable at a date to be announced later.

• AWC’s reported earnings came in slightly below our expectations as it accounted to 95.6% of our full-year estimated net profit of RM22.6 mln, while the reported revenue exceeded our estimated FY17 revenue of RM296.8 mln by 8.8%. The variance was mainly due to lower-thanexpected margins, coupled with higher interest expense.

Comments

• We continue to like AWC for its healthy mix of stable andrecurring revenue from the IFM segment and higher margin projects from the engineering and environment segments, as well as its cash rich business model. Its FY17 net profit, meanwhile, remains on an upward trajectory, albeit slightly slower compared to FY16 (+111.9% Y.o.Y) after notching another record breaking year in FY17.

• Although the reported earnings were marginally below our estimates, we maintain our BUY recommendation on AWC with an unchanged target price of RM1.20, pending an analyst briefing later.

• 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 AWC’s smaller market capitalisation

Company Briefs

• WCT Holdings Bhd has secured a contract a RM840.0 mln from Prasarana Malaysia Bhd for the construction and completion works relating to Light Rail Transit Line 3 (LRT3) from Bandar Utama to Johan Setia.

• The project is slated to be completed within 33 months from the date of the letter of acceptance. Further, the group has also announced that it will be collaborating with Singapore's CCCG Overseas Real Estate Pte Ltd to develop a piece of land in Tun Razak Exchange that it bought for RM223.0 mln in October 2015.

• AirAsia Bhd‘s 2Q2017 net profit plunged 73.0% Y.o.Y to RM92.5 mln, from RM342.1 mln last year, dragged down by deferred tax liabilities, despite a 46.5% Y.o.Y jump in quarterly revenue growth to RM2.38 bln, from RM1.62 bln a year earlier.

• For the 1H2017, AirAsia's net profit came in lower at RM762.4 mln, from RM1.22 bln previously, on higher operating expenses, while revenue rose 42.5% Y.o.Y to RM4.6 bln, from RM3.23 bln in 1H2016. AirAsia expects to outperform its 2016 results for the full year.

• Further, the group is also seeking backdoor listing of its Indonesian subsidiary, PT Indonesia AirAsia (IAA), on the Jakarta Stock Exchange. On that note, the group has proposed a debt-andshare-swap deal to inject a 57.3% equity stake of IAA into Indonesian-listed logistics and warehousing company, PT Rimau Multi Putra Pratama TBK (RMPP). Following the completion of the proposed transaction by 4Q2017, RMPP will effectively be the new holding company of IAA.

• 7-Eleven Malaysia Holdings Bhd’s 2Q2017 net profit took a hit, sliding 32.7% Y.o.Y to RM10.2 mln, compared to RM15.1 mln a year earlier, due to higher selling and distribution expenses. Revenue, meanwhile, gained 9.8% Y.o.Y to RM555.2 mln, from RM505.7 mln in the same period last year.

• Subsequently, 1H2017 net profit dropped 41.4% Y.o.Y to RM18.2 mln, from RM31.0 mln a year ago with a marginal growth of 4.4% Y.o.Y in revenue to RM1.08 bln, from RM1.03 bln previously. Moving forward, 7-Eleven Malaysia expects continued improvements in the next two quarters through cost management and commercial innovation and its "Back to Basics" programme.

• Telekom Malaysia Bhd’s 2Q2017 net profit jumped 51.0% Y.o.Y to RM210.5 mln, from RM139.5 mln, lifted by a foreign exchange gain on its borrowings. Revenue, however, slipped 2.0% Y.o.Y to RM2.98 bln, from RM3.05 bln in the preceding year. The group has also declared a single-tier interim dividend of 9.4 sen, payable on 13th October 2017.

• Cumulative 1H2017 net profit, meanwhile, narrowed 5.0% Y.o.Y to RM440.9 mln, from RM461.9 mln, due to higher operating costs, although revenue inched up to RM5.94 bln (+0.8% Y.o.Y) from RM5.9 bln in the previous corresponding period.

• MSM Malaysia Holdings Bhd posted a 2Q2017 net loss of RM21.5 mln, from a net profit of RM23.7 mln a year earlier, weighed down by higher production cost due costlier raw sugar, despite a 9.2% Y.o.Y growth in revenue to RM692.5 mln, from RM633.9 mln previously.

• Meanwhile, 1H2017 net loss stood at RM56.1 mln, from a net profit of RM83.1 mln a year earlier, although revenue rose to RM1.34 bln, from RM1.19 bln 1H2016. The group expects better results in the near term, premised on lower raw material costs presently.

• MY E.G. Services Bhd's 4QFY17 net profit expanded 17.0% Y.o.Y to RM59.5 mln, from RM51.0 mln in 4Q2017, in-tandem with a 20.0% Y.o.Y surge in revenue to RM105.1 mln, from RM87.4 mln a year ago.

• Full year earnings also surged 41.0% Y.o.Y to RM201.5 mln vs. RM142.9 mln, on the back of a 32.0% Y.o.Y growth in cumulative revenue to RM371.6 mln, from RM281.7 mln in the prior corresponding year.

• Malaysian Resources Corp Bhd’s (MRCB) 2Q2017 net profit nearly halved to RM23.4 mln, from RM45.5 mln last year, due to a disposal gain made in the 2Q2016. On the other hand, quarterly revenue surged 94.4% Y.o.Y to RM756.5 mln, from RM389.2 mln a year ago.

• Consequently, 1H2017 net profit also declined 32.2% Y.o.Y to RM33.8 mln, from RM49.9 mln, despite a 55.0% Y.o.Y hike in revenue to RM1.28 bln, from RM825.2 mln previously. The group’s current external orderbook stood at RM6.3 bln and it believes that it can maintain its operating profit throughout 2017.

• RHB Bank Bhd’s 2Q2017 net profit soared 43.0% Y.o.Y to RM501.0 mln, from RM350.2 mln a year earlier, attributed to higher net interest and Islamic banking income and lower allowance for bad loans. Revenue, however, declined to RM2.63 bln, from RM2.65 bln in the preceding year.

• Cumulative 1H2017 net profit rose to RM1.00 bln, from RM915.1 mln last year, despite a lower revenue contribution at RM5.25 bln, compared to RM5.36 bln in 1H2016.

• PPB Group Bhd has increased its capital expenditure (capex) by RM164.0 mln, mainly for investments in China flour mill, resulting in a total capex of RM565.0 mln earmarked for this year. Its grain and agribusiness, as well as film exhibition and distribution businesses will be allocated with RM207.0 mln each. Moving forward, the group expects the grain and agribusiness segment to stabilise, and its local mill's capacity to reach 2,500 tonnes per day.

• DutaLand Bhd made a turnaround in 4QFY17 with a net profit of RM15.1 mln against a net loss of RM5.0 mln a year ago, lifted by a gain on disposal of land, while revenue for the quarter rose more than eight times to RM91.3 mln, from RM10.7 mln in 4QFY16.

• For the full year, the group posted a FY17 net profit of RM13.2 mln, from a net loss of RM3.7 mln in the same period last year, while revenue more than tripled to RM130.4 mln, from RM37.8 mln. The group is in midst of negotiations to dispose its plantation assets for RM750.0 mln.

• Sunway Bhd's 2Q2017 net profit gained 28.0% Y.o.Y to RM196.9 mln, from RM154.4 mln a year earlier – led by better results from most business segments, as revenue grew 7.0% Y.o.Y RM1.24 bln, from RM1.16 bln a year ago.

• Cumulative 1H2017 net profit expanded 19.0% Y.o.Y to RM304.9 mln, from RM256.5 mln last year, while revenue was up by 5.0% Y.o.Y to RM2.33 bln, from RM2.22 bln previously. Sunway expects satisfactory performance in 2H2017, underpinned by unbilled property sales of RM1.2 bln and outstanding construction order book of RM4.3 bln.

• Eastern & Oriental Bhd's1QFY18 net profit surged more than six-fold to RM21.2 mln, from RM3.2 mln a year earlier, mainly contributed by the property and investments and others segments. Revenue for the quarter also grew 6.2% Y.o.Y to RM173.4 mln, from RM163.3 mln in the same period last year.

• Going forward, the group will pursue the sale of completed properties and the reclamation of STP2A in preparation for the launch of projects in 2019.  

Source: Mplus Research - 30 Aug 2017