• The FBM KLCI (-0.1%) ended lower after trading in a lackluster manner with the key index recording its fourth straight session of decline as foreign participants continued to offload Malaysian equities. The lower liners – the FBM Small Cap (- 0.2%), FBM Fledgling (-0.04%) and FBM ACE (-0.4%), all ended in the red, while the Technology (+1.8%), Finance (+0.1%) and Mining (+2.0%) sectors outperformed the negative broader market.

• Market breadth remained negative as losers outnumbered gainers on a ratio of 473-to-384 stocks. Traded volumes, however, added 3.2% to 3.25 bln shares as investors lock-in gains ahead of the extended weekend break.

• Key decliners on the big board were Petronas Gas (-34.0 sen), BAT (-30.0 sen), Genting (-11.0 sen), Westports (-11.0 sen) and Hong Leong Financial Group (-10.0 sen). Amongst the biggest decliners on the broader market include Hong Leong Industries (-18.0 sen), Malaysia Airport Holdings (-16.0 sen), Scientex (-13.0 sen) and United Uli-Corporation (-13.0 sen). Lotte Chemical fell 4.0 sen after a fire broke out at its plant in Pasir Gudang, Johor.

• Technology companies like KESM Industries (+52.0 sen), Pentamaster (+33.0 sen) and MPI (+26.0 sen) anchored the gainers on the broader market, while United Plantations added 30.0 sen. Hai-O Enterprise jumped 21.0 sen after reporting a strong set of quarterly earnings. RHB Bank (+13.0 sen) led the key index advancers list, followed KLK (+12.0 sen), PPB Group (+6.0 sen), Axiata (+5.0 sen) and CIMB (+4.0 sen).

• Asia benchmark indices advanced on Friday as the Nikkei (+0.1%) recorded its third consecutive day of winning streak despite trading in a lackluster manner. The Shanghai Composite gained 0.3%, while the Hang Seng Index closed 0.3% higher as investors await for the outcome of the U.S. Federal Reserve policy meeting. ASEAN stockmarkets, meanwhile, ended mixed.

• U.S. stockmarkets ended mixed last Friday as the Dow (-0.03%) extended its losses, dragged down by Apple Inc (- 1.0%) that fell for the third straight session after unveiling its latest mobile phone models. On the broader market, both the S&P 500 and Nasdaq added 0.1% each after recovering all their intraday losses.

• Earlier, European benchmark indices closed mostly higher as the FTSE and CAC added 0.6% and 0.3% respectively as the former was lifted by the weaker British Pound against the Greenback. The DAX, however, fell 0.1% after enduring a volatile trading session ahead of its election over the weekend.

The Day Ahead

• With the selling still prevalent among the selected index heavyweights, particularly by foreign funds, the FBM KLCI’s immediate outlook is still insipid and is prone to further downside risk. This could mean that the 1,770 support level could be retested again amid the lack of buying support and if the level gives way, the 1,765 level will come into play again.

• Still, we think there could be some support from local funds to keep the key index above the 1,770 points level, but any recovery is likely to be mild at this juncture with the lingering general market wariness keeping a lid on any rebound.

• Despite the increased trading on the lower liners and broader market shares of late, we think the mixed environment could prevail as rotational plays remain a feature and this could curtail their upsides as retail players continues their quick profit taking strategies.

Company Update

• OldTown Bhd has temporarily halted its work at the central food processing centre at Subang Jaya after an explosion on 22nd September 2017. The café chain operator said that the explosion has affected the production floor of the centre and injured several employees, although it did not impact its coffee and beverage manufacturing and warehousing facilities. Old Town expects its insurance coverage to adequately cover the explosion damages pending assessment.

Comments

• We expect the incident to have little impact on Oldtown’s operations as the explosion was contained to its production floor and there were no impact to its manufacturing and warehousing facilities. Meanwhile, damages resulted from its central kitchen is also expected to be sufficiently covered by insurance.

• Nevertheless, we raise our call on Oldtown to a BUY (from Hold) recommendation with an unchanged target price of RM2.95, following a kneejerk selldown in its share price last Friday after the announcement of the explosion incident, which we believe is overdone.

• Our target price is derived from ascribing an unchanged target PER of 18.0x to its FY18 EPS of 16.3 sen. The target PER is based on a discount to the 24x-26x average PER of consumer products bellwethers like Nestle and Dutch Lady due to Oldtown’s smaller market capitalisation.

COMPANY BRIEF

• UEM Edgenta Bhd’s 80.0%-owned subsidiary, KFM Holdings Sdn Bhd has secured an engineering services contract from Malaysia Airlines Bhd for RM6.8 mln. The contract includes rectification works, making good defects for mechanical and electrical systems, as well as civil and structure services over a period of six months. (The Edge Daily)

• Mega First Corp Bhd has announced that its 65.0%-owned subsidiary, Idaman Harmoni Sdn Bhd, has been sued by the Inland Revenue Board (IRB) for RM26.3 mln in owed tax, which was related to a joint-venture (JV) project between Idaman Harmoni and IJM Corp Bhd’s unit, IJM Properties Sdn Bhd to build PJ8, an office tower that had an estimated gross sales value of RM210.0 mln.

• The group may challenge the legal suit on the grounds that the assessments for 2009 and 2010 cited by the IRB are statute-barred and erroneous in law. (The Edge Daily)

• Poh Kong Holdings Bhd's 4QFY17 net profit jumped more than five-fold to RM14.3 mln, from RM2.8 mln in the previous corresponding period, on the back of a 31.0% Y.o.Y hike in revenue at RM256.0 mln vs. RM198.4 mln a year ago.

• FY17 net profit more than doubled to RM29.6 mln, from RM11.0 mln a year ago, while revenue grew 13.0% Y.o.Y to RM877.0 mln, from RM776.5 mln previously. (The Edge Daily)

• NTPM Holdings Bhd posted a 29.0% Y.o.Y increase in 1QFY18 net profit to RM12.1 mln, from RM9.4 mln last year, lifted by higher contribution from both its paper products and personal care products segments. Quarterly revenue, meanwhile, gained 16.0% Y.o.Y to RM176.2 mln, from RM151.4 mln in 1QFY17. (The Edge Daily)

• Asia Bioenergy Technologies Bhd (ABT) has sold its entire 8.9 mln shares (or 2.33% equity stake) in T7 Global Bhd for RM3.7 mln. The shares were acquired for RM3.2 mln previously. Subsequently, the disposal proceeds will be channeled back to its technology incubator funds, which will be used to fund future investments within three years. (The Edge Daily)

• Spritzer Bhd plans to raise about RM64.0 mln via a private placement of about 27.4 mln new shares (or 15.0% of its current issued shares) at an issue price of RM2.33 per share to Tasik Puncak Holdings Bhd. The proceeds will be used to build an automated warehouse in Taiping, Ipoh.

• The proposed exercise will dilute its largest shareholder, Yee Lee Corp Bhd's equity stake to 27.9% (from 32.1%), while Tasik Puncak will emerge as its second largest shareholder with a 13.0% stake. (The Star Online)

• Lien Hoe Corp Bhd has withdrawn its Letter of Demand (LoD), which was issued on 7th September 2017 for some RM50.5 mln in claims for outstanding installment payments and accrued interest from Gabungan AQRS Bhd, after receiving payment from the latter, although the exact sum was not revealed. (The Star Online)

• Sentoria Group Bhd has proposed a 1- for-10 bonus issue of up to 52.8 mln new shares and a rights issue of up to 211.2 mln warrants at 25.0 sen each on the basis of four warrants-for-every 10 shares held. The group plans to raise up to RM52.8 mln, which will be used mainly as working capital for its property development projects in Kuantan, Kuching and Morib, Selangor. The exercise price of the warrants has been fixed at 60.0 sen per share and the exercise is slated to be completed by December this year. (The Edge Daily)

• FoundPac Group Bhd is planning a 2- for-5 bonus issue and a share buy-back exercise that will involve the purchase of up to 10.0% of its total issued shares. The proposed exercise include issuing up to 148.0 mln new ordinary shares on the basis of two bonus shares-for-every five existing FoundPac shares held.

• Meanwhile, the proposed share buyback is expected to be financed via internal funds and/or external bank borrowings. The group is also planning to establish an ESOS involving up to 10.0% of its total number of issued shares. The aforementioned corporate exercises are slated to be completed by 1Q2018. (The Star Online)  

Source: Mplus Research - 25 Sept 2017