• Despite opening higher at the start of the trading session, quick profit taking sent the FBM KLCI (-0.4%) lower as the key index bucked the positive sentiment on Wall Street overnight to register its eighth straight losing streak. The lower liners – the FBM Small Cap (-0.2%), FBM Fledgling (-0.2%) and FBM ACE (-0.7%), also retreated, while the Plantations sector (+0.3%) outperformed the negative broader market.

• Market breadth returned to negative as losers overcame gainers on a ratio of 506-to-328 stocks. Traded volume, however, added 4.3% to 2.31 bln shares as profit taking activities took precedence.

• More than two-third of the key index constituents fell, dragged down by Petronas Dagangan (-16.0 sen), followed by Westports (-12.0 sen), PPB Group (- 12.0 sen), Petronas Gas (-12.0 sen) and Genting Malaysia (-10.0 sen). Amongst the biggest decliners on the broader market include Allianz (-48.0 sen), Panasonic (-38.0 sen), Heineken (-34.0 sen), KESM Industries (-20.0 sen), and Hong Leong Industries (-18.0 sen).

• On the flipside, notable advancers on the broader market include MPI (+34.0 sen), Tasek (+26.0 sen), Magni-tech Industries (+25.0 sen) and SAM Engineering & Equipment (+24.0 sen). V.S. Industry gained 12.0 sen after reporting a strong set of quarterly earnings. There were only five gainers on the FBM KLCI – BAT (+20.0 sen), IOI Corporation (+7.0 sen), KLK (+6.0 sen), Axiata (+3.0 sen) and Petronas Chemicals (+1.0 sen).

• Asia benchmark indices closed mostly lower yesterday as the Hang Seng Index and Shanghai Composite fell 0.8% and 0.2% respectively as investors assess the tax reform plans unveiled by U.S President Donald Trump. The Nikkei, however, added 0.5%, lifted by the weaker Japanese Yen against the Greenback. ASEAN stockmarkets, meanwhile, ended mostly lower.

• U.S. stockmarkets extended their gains overnight as the Dow added 0.2%, buoyed by the stronger-than-expected 2Q2017 GDP growth rate at 3.1% – the quickest since 1Q2015. On the broader market, the S&P 500 gained 0.1% to close a fresh alltime high level, anchored by gains in the material sector (+0.7%).

• European benchmark indices – the FTSE (+0.1%), CAC (+0.2%) and DAX (+0.4%), all extended their gains after the Eurozone’s business confidence for September 2017 rose to 1.34 – the highest level since April 2011. Notable advancers include banking stocks like Deutsche Bank AG (+2.1%), Societe Generale (+0.4%) and Barclays PLC (+1.0%).

The Day Ahead

• It continues to be a difficult market environment with the selling still persisting amid the lack of fresh leads that is prompting foreign funds to lock in their profits. As a consequent, the near term prognosis is likely to remain weak with few fresh buying impetus even though the market is already reaching oversold. This means that the major psychological support at the 1,750 level could be retested.

• While we continue to think that a rebound is due to adjust from the current bout of oversold, the recovery remains elusive for now given that the general market sentiment is still insipid. Therefore, any rebound will be meek with the 1,760- 1,765 level the potential targets given that the fresh buying is still elusive.
   
• The weak market sentiment is also permeating to the lower liners and broader market shares with the mixed-tolower conditions to remain in-force over the near term.

Company Update

• Kim Loong Resources Bhd’s 2QFY18 net profit jumped 61.6% Y.o.Y to RM27.5 mln, lifted by the higher production and crude palm oil prices amid the recovery from the El-Nino weather phenomenon during 2015-2016. Revenue for the quarter gained 23.6% Y.o.Y to RM260.5 mln.

• For 1HFY18, cumulative net profit added 76.0% Y.o.Y to RM51.8 mln. Revenue for the period expanded 32.8% Y.o.Y to RM516.1 mln. In conjunction with the quarterly results release, the group has also declared an interim single tier dividend of 9.0 sen per share, payable on 21st November 2017.

Comments

• The results were slightly above expectations with its revenue amounting to 56.4% of our full-year forecast of RM914.7 mln, while its net profit came in at 56.3% of our estimate of RM92.2 mln. The variance was mainly due to its higher topline growth coupled with lower effective tax rate at 23.2% in 1HFY18 vs. 24.0% in our forecast.

• Despite the reported results coming in slightly above our estimates, we leave our earnings forecast unchanged as we reckon that the group’s 2HFY18 performance is likely to be softer due to seasonal factors.

• Therefore, we maintain our HOLD recommendation on KLR with an unchanged target price of RM4.15 as we arrive at our target price by ascribing a n unchanged PER of 14.0x to its FY18 EPS of 29.6 sen. The ascribed target PER is in line with the industry average of around 13.0x-15.0x as well as peer’s (mid-sized plantation companies) average of 15.1x.

• Mah Sing Group Bhd has awarded a RM50.0 mln contract to Kimlun Corporation Bhd to build a connecting road to the Tanjung Langsat–Cahaya Baru Toll Connecting Highway in Johor. Work for the road, which will improve accessibility to Mah Sing’s township development “Meridin East”, is set to begin in the first quarter of 2018, with completion scheduled at end-2020.

Comments

• The above-mentioned contract brings Kimlun’s contrstruction orderbook YTD at RM527.8 mln, representing 88.0% of our orderbook replenishment target of RM600.0 mln for 2017. We think that the project will be able to generate a gross profit margin between 12.0%- 13.0%, which is similar with its previous construction projects margin.

• With that, the group’s unbilled construction and manufacturing orderbook now stands at approximately RM2.00 bln and RM320.0 mln respectively and they will provide earnings visibility over the next 2-3 years.

• With the orderbook replenishment falling within our estimates, we made no changes to our earnings forecast. We also 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.

COMPANY BRIEF

• Damansara Realty Bhd received the renewal of five contracts from Telekom Malaysia Bhd v™ for integrated facilities management (IFM) services worth RM5.0 mln. The one-year renewal contract include the comprehensive management of civil, mechanical and electrical services for several TM buildings including Menara TM, TM Annexe 1 & 2, Menara Celcom and Wisma TM Taman Desa. (The Star Online)

• Malayan Banking Bhd (Maybank) has acquired a 75.0% equity stake in Indonesian general insurance company, PT Asuransi Asoka Mas from PT Transpacific Mutualcapita for 207.2 bln rupiah (RM64.9 mln). Subsequently, the latter will keep the remaining 25.0% shareholding in Asoka. (The Edge Daily)

• JHM Consolidation Bhd is buying Mace Instrumentation Sdn Bhd for RM48.0 mln, which will be paid via 16.0 mln new shares of JHM at RM3.00 apiece. Separately, JHM has also proposed a one-to-two share split at a date to be determined later. (The Edge Daily)

• Matang Bhd's proposed plan to buy two parcels of leasehold agricultural land, together with the property on the land in Raub, Pahang, for RM180.0 mln was held back by an injunction granted by the High Court.

• The group had received a letter from Raub Mining & Development Co Sdn Bhd, one of the parties involved in the sale on the 29th September, 2017, informing that the disposal of the assets will be put on hold due to the injunction. (The Edge Daily)

• Muar Ban Lee Group Bhd has aborted its plans to dispose its oil palm unit, Sokor Gemilang Ladang Sdn Bhd, following the expiry of the non-binding preliminary agreement inked with furniture maker Everhome International (M) Sdn Bhd.

• To recap, the group has, in March, announced its plans to sell Sokor Gemilang – the owner of the rights to develop 789 ha. of land into an oil palm or rubber plantation, to Everhome International for RM35.1 mln. (The Edge Daily)

• MCE Holdings Bhd has secured contracts worth RM33.0 mln to supply various electronic and mechatronic components and parts for Perodua's new car models. The seven-year contract, which is expected to incur a total investment cost of RM1.0 mln, will commence between May and July next year.

• The group has also posted a 4QFY17 net loss of RM671,000, from a net profit of RM229,000 a year earlier, weighed down by lower revenue which fell 22.0% Y.o.Y to RM14.3 mln due to lower demand for original equipment manufacturer (OEM) products.

• However, the group made a turnaround in full year earnings with a net profit of RM1.3 mln in FY17, from a net loss of RM2.3 mln in FY16, on the back of a 4.0% Y.o.Y hike in revenue at RM80.2 mln, from RM76.9 mln last year. (The Edge Daily)

• George Kent (M) Bhd posted a 24.0% Y.o.Y jump in 2QFY17 net profit to RM25.4 mln, from RM20.5 mln in the same quarter last year, lifted by higher contribution from both its engineering and metering divisions, while revenue gained 14.0% Y.o.Y to RM187.6 mln, from RM164.8 mln. The group declared an interim single-tier dividend of 2.5 sen per share, payable on 9th November, 2017. (The Star Online)

• Jaycorp Bhd’s 4QFY17 net profit surged 42.3% Y.o.Y to RM7.4 mln, from RM5.2 mln in the previous corresponding period, mainly due to higher contribution from its furniture segment as revenue grew 18.2% Y.o.Y to RM80.5 mln, from RM68.1 mln in 4QFY16. The board has proposed a final dividend of six sen a share, bringing total payout for the current year to 11.0 sen vs. 10.0 sen in the previous year.

• Meanwhile, cumulative FY17 net profit rose 18.0% Y.o.Y to RM24.8 mln, from RM21.0 mln in FY16, while revenue climbed 8.1% Y.o.Y to RM312.8 mln from RM289.4 mln previously.

• Berjaya Corp Bhd trimmed its 1QFY18 net loss to RM43.4 mln, from RM62.7 mln a year earlier – mainly due to lower tax expenses, even as revenue slipped marginally by 1.2% Y.o.Y to RM2.2 bln, from RM2.22 bln a year ago.

• PN-17 company Berjaya Media Bhd’s 1QFY18 net loss has narrowed by 29.8% Y.o.Y to RM1.5 mln, from RM2.1 mln in the same quarter last year, on the back of lower impairment losses on investments, while revenue lost 6.8% Y.o.Y to RM10.1 mln, from RM10.9 mln last year. Future prospects could include diversification into new businesses outside the media sector. (The Star Online)

• Gamuda Bhd’s 4QFY17 net profit declined 32.0% Y.o.Y to RM102.8 mln vs. RM152.1 mln, due to a one-off impairment on its SMART tunnel project totalling RM98.0 mln, despite posting record high revenue, that surged 64.9% Y.o.Y to RM1.01, compared with RM614.4 mln a year earlier - lifted by more construction projects and higher property sales in Vietnam.

• Cumulative full-year net profit slid 3.8% Y.o.Y to RM602.1 mln, from RM626.1 mln previously, while revenue soared 51.4% Y.o.Y to RM3.21 bln, from RM2.12 bln in FY16. (The Star Online)  

Source: Mplus Research - 29 Sept 2017