• The FBM KLCI (+0.6%) extended its gains for the second-straight day on the back of bullish sentiments spilled over from Wall Street overnight as investors cheered the temporary relief from Washington’s debt ceiling crisis after U.S. agreed to raise its debt ceiling until December. All the lower liners soared, led by the FBM ACE (+1.5%), as all of Bursa Malaysia’s ten sub-sectors advanced.

• Market breadth turned positive as winners outpaced losers on a ratio of 533-to-317 stocks. Traded volume also expanded by 18.6% to 2.63 bln shares, amid strong buying-interest in the local bourse.

• On the Main Board, BAT (+RM1.46), CIMB (+16.0 sen), Tenaga (+16.0 sen), Genting Malaysia (+12.0 sen) and Hap Seng Consolidated (+12.0 sen) outperformed its peers. Meanwhile, top gainers on the broader market were Panasonic (+76.0 sen), Ajinomoto (+46.0 sen), Nestle (+46.0 sen) and Bursa Malaysia (+42.0 sen).

• On the flip side, furniture manufacturers like SHH Resources (-12.0 sen), Latitud Tree Holdings (-10.0 sen) and Heveaboard (-9.0 sen) weighed on the broader market. Other losers include Perak Corporation (-11.0 sen) and Eng Kah (-9.0 sen). Key-index laggards were Petronas-affiliated stocks like Petronas Gas (-18.0 sen) and Petronas Dagangan (- 12.0 sen), followed by Sime Darby (-4.0 sen), Public Bank (-2.0 sen) and RHB Bank (-2.0 sen).

• Key regional stockmarkets finished mostly in the red, despite the positive close in U.S. bourses overnight due to a weaker Greenback. The Nikkei (+0.2%) snapped a streak of four consecutive sessions of losses to close higher with more than half of its subsectors in the green. The Hang Seng Index (-0.3%) and the Shanghai Composite (-0.6%), however, narrowed due to quick profittaking activities amid lingering geopolitical concerns. ASEAN stockmarkets, meanwhile, ended mostly on a positive note.

• Wall Street finished with marginal changes overnight as weakness in media stocks offset gains in healthcare companies. The Dow (-0.1%) shaved off earlier gains, dragged down by Disney (- 4.4%). On the broader market, the S&P 500 flatlined, although gains in Microsoft and Amazon kept the Nasdaq (+0.1%) afloat, inching above the 6,390.0 psychological level.

• Earlier, European equities rallied as investors digested the ECB’s potential decision to scale back its monetary stimulus and a stronger Euro. The FTSE was 0.6% higher, buoyed by Micro Focus (+5.1%), following the completion of its acquisition deal involving Hewlett Packard Enterprises. The CAC and the DAX, meanwhile, finished up by 0.3% and 0.7% respectively.

The Day Ahead

• Once again, yesterday’s gains were deemed superficial with the late push on selective index heavyweights that hauled the key index back above the 1,780 level, which is also leaving the key index to look toppish again.

• Therefore, we think the key index is due for a slight pullback after yesterday’s strong gains that could see the key index retreating back to the 1,780-1,775 level as investors lock-in their short-term profits ahead of the weekend.

• Similarly, we think the lower liners and broader market shares could also see quick profit taking activities with retail players unwind their trading positions.

Company Update

• Mitrajaya Holdings Bhd has clinched a RM333.6 mln contract to construct an academic building and car park for a higher learning institution in Kuala Lumpur. Its wholly owned subsidiary, Pembinaan Mitrajaya Sdn Bhd, had accepted its appointment as the contractor on 6th September 2017. The contract, to begin on 15th September 2017, is expected to be completed in two years.

• Separately, Pembinaan Mitrajaya has also bagged a RM43.9 mln contract from Gema Padu Sdn Bhd to build three blocks of apartment residences, housing 338 units with built-up sizes ranging from 750 sq. ft. to 900 sq. ft. and amenities at Kota Warisan, Sepang, under the Rumah Selangorku scheme. The contract, for duration of three years, is expected to be completed by August 2020.

Comments

• The abovementioned project brings its construction orderbook replenishment to RM994.8 mln YTD, well within our targeted orderbook replenishment rate of RM1.00 bln. We think that the projects could command a pretax margin of about 10%-11%, slightly lower vs. its previous construction contracts at 11%-12% pretax margin due to higher construction costs. Mitrajaya’s outstanding orderbook now stands at approximately RM1.94 bln (implying an orderbook cover ratio of 2.3x over its 2016 construction revenue), that will also provide earnings visibility over the next 2-3 years.

• With the contract falling within our targeted orderbook replenishment rate, we leave our earnings forecast unchanged and we reiterate our BUY recommendation on Mitrajaya with an unchanged target price of RM1.65. Our target price is derived from ascribing an unchanged target PER of 11.0x to its 2018 (fully diluted) construction earnings, while the value of its property development units, both local and overseas, are valued at 0.8x their respective book values.

Company Briefs

• Ahmad Zaki Resources Bhd (AZRB) was awarded a RM221.9 mln contract from BBCC Development Sdn Bhd, the developer of the RM8.70 bln Bukit Bintang City Centre at the former Pudu Prison site. The work is for Substructure Package B2 for earthworks, piling, diaphragm wall, RC works, transmission main intake substation (PMU) and main distribution substation (PPU) works. (The Star Online)

• Lien Hoe Corp Bhd is demanding the full outstanding sum of RM50.0 mln plus accrued interest of RM0.5 mln from a unit of Gabungan AQRS Bhd for allegedly defaulting on an agreed schedule of payment under their development agreement. In the letter of demand, Lien Hoe stated that AQRS had defaulted on the schedule of payment following a supplemental agreement dated 22nd July 2016 and other agreements.

• Lien Hoe had entered into an agreement with AQRS in September 2011 to jointly develop and complete two 38-storey serviced apartment blocks on its 5.4-ac. freehold land in Johor Baru and it was supposed to be paid a minimum guaranteed amount of RM117.0 mln in cash by AQRS as its entitlement to the revenue of the development. (The Star Online)

• Amanahraya Real Estate Investment Trust (Amanahraya REIT) is acquiring Vista Tower, a 63-storey office building, from The Intermark Sdn Bhd for RM455.0 mln in cash — funded via a medium-term note programme. The purchase consideration was below the market value, estimated at about RM523.0 mln, based on the investment method. (The Edge Daily)

• SCGM Bhd’s 1QFY18 net profit improved marginally by 1.5% Y.o.Y to RM5.6 mln. Revenue for the quarter added 41.7% Y.o.Y to RM53.7 mln. A first interim dividend of 1.5 sen per share, payable on 18th October 2017, was declared. (The Edge Daily)

• PUC Bhd has received the nod from Bank Negara Malaysia (BNM) to launch an electronic money (e-money) scheme through its mobile application. E-money schemes are divided into small and large schemes depending on purse size and the outstanding e-money liabilities and the BNM approval is for the large scheme. (The Edge Daily)

• Telekom Malaysia Bhd (TM) and Iskandar Regional Development Authority (IRDA) had recently signed a Memorandum of Understanding (MOU), under which TM will implement smart city services across Johor's Iskandar Malaysia. TM’s investments in Iskandar Malaysia include the fibre optic telecommunication infrastructure, a world-class data centre and an Integrated Operations Centre — the first centralised command centre in Malaysia for Internet of Things operations of smart city services. (The Edge Daily)

• Bintai Kinden Corporation Bhd is looking at participating in data centres amid the flourishing e-commerce trend in South East Asia. The group aims to tender for mechanical and electrical engineering (M&E) service provision projects for data centres in the region, especially in Singapore. (The Edge Daily)  

Source: Mplus Research - 8 Sept 2017