• The FBM KLCI narrowed yesterday after gyrating between the negative and the positive territory, weighed down by profittaking in selected banking heavyweights. The lower liners, however, finished mostly higher, with the exception of the FBM Fledgling (-0.1%). The broader market, meanwhile, finished mostly higher on Tuesday’s closing bell.

• Market breadth was slanted towards the positive side as advancers edged decliners on a ratio of 430-to-401 stocks. Traded volumes were also lower marginally by 1.8% to 2.78 bln shares amid cautious investor sentiments.

• Significant banking stocks that weighed on the key-index include Hong Leong Financial Group (-8.0 sen) and Ambank (- 6.0 sen), followed by BAT (-14.0 sen), Genting Malaysia (-11.0 sen) and Telekom Malaysia (-8.0 sen). Notable losers on the broader market, meanwhile, include consumer products giant like Dutch Lady (-68.0 sen) and Fraser & Neave (-26.0 sen), alongside MMC Corporation (-12.0 sen), PMB Technology (-10.0 sen) and Time Dotcom (-10.0 sen).

• On the other hand, Genetec Technology (+26.0 sen), Mercury Industries (+23.0 sen), Allianz Malaysia (+22.0 sen) and Lotte Chemical (+12.0 sen) advanced. Serba Dinamik (+17.0 sen) also propped the broader market higher after announcing plans to set up and operate a chlor-alkali plant in Tanzania. Key-index movers were Petronas Gas (+50.0 sen), Hong Leong Bank (+8.0 sen), Genting (+7.0 sen), Westports (+6.0 sen) and Axiata (+4.0 sen).

• Key regional benchmark equities climbed, despite the weakness on Wall Street overnight. The Nikkei gained 0.6%, albeit slightly capped by losses in Kobe Steel (- 21.9%),amid its recent scandal involving data falsification of its product quality. The Shanghai Composite index added 0.3%, while the Hang Seng rebounded from earlier losses to close up by 0.6%. ASEAN stockmarkets also ended mostly higher, in-tandem with the prevailing positive sentiment.

• Wall Street resumed its upward momentum, boosted by Wal-Mart after the latter announced its plans for a share buy-back. The Dow (+0.3%) was on a roll, notching its 47th record high for the year, while the Nasdaq the S&P 500 also gained 0.1% and 0.2% respectively after hitting fresh intraday peaks.

• The majority of European equities saw renewed downward pressured, weighed down by political uncertainty in Spain, albeit slightly offset by gains in energy stocks. The FTSE bucked the general tone to close up by 0.4% - led by upbeat manufacturing data and gains in major banks. On the other hand, the CAC (- 0.04%) dipped marginally into the red, while the DAX weakened by 0.2%, pulled down by the weakness in automakers.

The Day Ahead

• There continues to be few impetus for stocks on FBM KLCI to head higher over the near term as the selective profit taking is still ongoing that is keeping a lid on the market’s upside. This is leaving the key index to linger around the 1,760 level and this trend is likely to continue over the near term amid the lack of sustained buying support to push the market significantly higher

• Under the prevailing environment, we see the key index hovering within the tight range of between the 1,758 and 1,765 levels over the near term in view of the still insipid market environment. ? Rotational play among the lower liners and broader market shares are also still ongoing, but we see quick profit taking activities limiting their gains. Nevertheless, the above plays are helping to shore up both market breadth and depth, which was lacking a little while ago.

Company Update

• AWC Bhd and the federal government have mutually agreed to terminate the IFM contract for the Integrated Transport Terminal in Bandar Tasek Selatan (BTS) worth RM130.0 mln. To recap, the project was initially awarded on 9th June 2016 but had been deferred indefinitely on 26th August 2016, due to certain operational and technical issue between the government and the previous contractor for TBS.

Comments

• We are neutral on the aforementioned announcement as the contract was excluded from our earnings forecast due to the uncertainties over the status of the project and the timing of its commencement date. 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 its nearest competitor, UEM Edgenta Bhd due to AWC’s smaller market capitalisation.

Company Brief

• KNM Group Bhd's United Kingdom unit, Peterborough Green Energy Ltd has awarded a £346.0 mln (RM1.90 bln) contract to a China Western Power Industrial Co. Ltd to build an energyfrom-waste power plant. Peterborough Green Energy had inked the engineering, procurement, construction and commissioning (EPCC) contract with China Western Power on a deferred payment scheme.

• The EPCC contract pertains to the construction of a 36MW energy from waste power plant for its Peterborough Green Energy Project in UK for a period of 37 months from the commencement date of the construction, which is expected to commence in 1Q2018. KNM expects the project to provide recurring income in the near future, in line with its long term strategic direction of generating sustainable and recurring income streams from its renewable energy businesses. (The Star Online)

• D&O Green Technologies Bhd has acquired an additional 28.0% stake in light emitting diode (LED) maker, Dominant Opto Technologies Sdn Bhd for RM275.2 mln. D&O, which in August made an offer to several Dominant shareholders to buy out their shares, saw its offer for the shares at RM8.95 each accepted by all of the offerees as of the closing date on 10th October 2017.

• This would boost D&O’s stake in Dominant - its principal operating subsidiary that produces LEDs at a state-of-the-art facility in Batu Berendam, Melaka to 89.8%. The latest Dominant shareholder to accept the offer was Golden Horizon Resources Ltd (GHRL), which is owned by D&O’s major shareholders Goh Nan Yang (also a D&O director) and Lim Yam Chiew.

• GHRL would be paid RM107.4 mln for its 10.9% stake. It is the single biggest block of shares among the parties that sold off their stakes. All the shareholders who accepted the offer will be paid by the issuance of new Irredeemable Convertible Preference Shares (ICPS) in D&O. The acquisition of the shares is expected to be completed in the 1Q2018. (The Star Online)

• Ireka Corp Bhd has won a RM60.8 mln contract to conduct refurbishment and improvement works for two hospital blocks at Pantai Hospital Kuala Lumpur. The job includes refurbishment of the 12-storey Block B and improvement and additional works for the six-storey Block A. Works on Block A should complete by 15th January 2018, whereas additional works for Block B is planned for completion by 15th June 2018. (The Edge Daily)

• Malaysia Airports Holdings Bhd (MAHB) posted a 4.7% Y.o.Y growth in passenger traffic in September 2017, with combined passenger volume of 10.8 mln in all its airports, including Istanbul’s Sabiha Gokcen International Airport (Istanbul SGIA). For the Kuala Lumpur International Airport (KLIA), passenger movements grew 5.5% Y.o.Y to 4.7 mln. Passenger traffic for the Main Terminal, however, dipped 3.4% Y.o.Y, while klia2 saw a 15.0% Y.o.Y improvement. (The Edge Daily)

• Muhibbah Engineering (M) Bhd won a RM168.0 mln contract to carry out infrastructure works for the Kertih Biopolymer Park in Terengganu. The contract,from the East Coast Economic Region Development Council, is for the construction of major earthworks, road and drainage works, utility services and other associated works. (The Edge Daily)

• Mega First Corp Bhd has secured a US$150.0 mln (RM634.9 mln) loan to part-finance the construction of the Don Sahong hydropower project in Laos. Its wholly-owned subsidiary, Mega First Investments (L) Ltd has entered into facility agreements with various financial institutions for the "club deal facilities". The US$150.0 mln loan comprises conventional term-loan facilities of US$85.0 mln and an Islamic financing scheme of up to US$65.0 mln. (The Edge Daily)

• PRG Holdings Bhd is set to develop its first affordable housing development in Ipoh, Perak with Syarikat Perumahan Negara Bhd (SPNB) once it has acquired the parcels of land for the remaining sum of RM8.6 mln. Its wholly-owned unit, Premier Construction Sdn Bhd (PCSB) has entered into a Mutual Agreement (MA) with SPNB’s unit, SPNB Aspirasi Sdn Bhd (SASB), and Cash Key (Ipoh) Sdn Bhd (CKISB), the registered owner of the 213 parcels of land on 10th October 2017.

• The land initially cost RM10.0 mln and SASB had already paid CKISB RM2.4 mln based on a previous joint development agreement (JDA) between the two parties in February 2016. The MA inked saw the three parties agreeing to mutually terminate the JDA and for PCSB to pay the remainder of the land cost to CKISB. (The Edge Daily)

• TH Heavy Engineering Bhd’s oil and gas fabrication unit has once again been barred by Petroliam Nasional Bhd (Petronas) from various job due to its “non-performance” in a Sabah project, this time without a specified timeline. THHE Fabricators Sdn Bhd (TFSB) received the letter on the exclusion from Petronas on 9th October 2017.

• The latest exclusion was in relation to TFSB’s non-performance in relation to a contract known as Procurement, Construction and Commissioning (PCC) of KNPG-B Topside PH II, Kinabalu NonAssociated Gas (NAG) Development Project (PH II Kinabalu Project). TFSB is currently facing a two-year ban from participating in tenders by Petronas Carigali since 4th April 2016.

• Petronas Carigali first awarded the PH II Kinabalu contract to TFSB on 28th January 2014. When it received the two-year exclusion from Petronas Carigali, THHE argued at that time, saying the project had achieved an onshore construction completion of approximately 91.0%, but to no avail. (The Edge Daily)  

Source: Mplus Research - 11 Oct 2017