• Despite being traded mostly in the negative territory, the final hour buying support on selective index heavyweights lifted the FBM KLCI (+0.1%) higher. However, the local bourse fell 0.5% W.o.W after succumbing to some selling pressure earlier in the week. The lower liners ended mostly higher as the FBM Small Cap and FBM Fledgling added 0.03% and 0.3% respectively, while the Construction sector (-0.4%) was the sole decliner on the broader market.

• Market breadth remained positive as winners outnumbered losers on a ratio of 452-to-396 stocks. Traded volumes, however, declined 25.7% to 3.22 bln shares.

• Key winners on the big board were Hong Leong Bank (+14.0 sen), Petronas Gas (+12.0 sen), BAT (+10.0 sen), Tenaga (+8.0 sen) and IHH (+6.0 sen). Notable advancers on the broader market were consumer products stocks like Padini (+25.0 sen), Dutch Lady (+24.0 sen), and Heineken (+18.0 sen). Vitrox added 24.0 sen, while Atlan Holdings added 10.0 sen after reported a positive set of quarterly earnings.

• On the flipside, amongst the biggest losers on the broader market were Panasonic (-32.0 sen), MPI (-30.0 sen), Lafarge (-20.0 sen), United Plantations (- 14.0 sen) and Pintaras (-13.0 sen). Meanwhile, RHB (-6.0 sen), Genting (-6.0 sen), Axiata (-6.0 sen), KLK (-4.0 sen) and Hong Leong Financial Group (-4.0 sen) topped the FBM KLCI decliners list.

• Asia benchmark indices advanced last Friday as the Nikkei surged 1.0% to close above the 21,000 psychological level, supported by a series of strong corporate earnings. Both the Shanghai Composite and Hang Seng Index gained 0.1% each as the former was spurred by the central bank’s move to cut reserve ratio requirement for banks from 2018. ASEAN stockmarkets, meanwhile, ended mostly higher.

• Wall Street staged a quick recovery last Friday after the country’s inflation rate in September 2017 rose 2.2% Y.o.Y – the quickest pace in five months. The Dow (+0.1%) was lifted by gains in American Express (+1.4%) and McDonalds Corporation (+0.9%), On the broader market, S&P 500 rose 0.1%, while the Nasdaq (+0.2%) closed at its all-time high level at 6.605.8 pts.

• European benchmark indices, however, closed mostly lower as the FTSE and CAC shed 0.3% and 0.2% respectively as the former retreated from its record high level, weighed down by the stronger British Pound against the U.S. Dollar. The DAX, however, added 0.1% after enduring a choppy trading session.

The Day Ahead

• Despite the market posting a slight recovery to end last week on a positive note, the general market environment remains indifferent with few noteworthy developments to sustain the uptrend, in our view. As it is, the buying support remains selective and this trend is likely to persist over the near term.

• Consequently, we think the market is likely to continue on drifting mode, lingering within the 1,750 and 1,755 levels over the near term as the buying support remains selective amid the lack of a sustainable positive undertone.

• The lower liners and broader market shares, however, will continue to experience the bouts of rotational plays after the lull period in the past few months and this will help to sustain both the market breadth and depth at high levels.

Company Update

• Mitrajaya Holdings Bhd has proposed a 1- for-5 renounceable rights issue of up to 157.5 mln shares together with Warrants E and bonus issue on the basis of a warrant and a bonus share for every two rights shares subscribed. The entitlement date will be determined later.

• Based on the indicative issue price of 68.0 sen per rights share, the company aims to raise between RM93.7 mln and RM107.1 mln to pare down the unsecured revolving credit of about RM145.3 mln given by financial institutions to Mitrajaya’s unit, Pembinaan Mitrajaya Sdn Bhd. The revolving credit was used for working capital purposes, including payment to sub-contractors and suppliers. The proposed rights issue is expected to be completed by 1Q2018.

Comments

• We reckon that the proposed corporate exercise is aimed at strengthening the group’s balance sheet and we view it as slightly positive over the longer term. Although there will be a dilutive effect on its share capital, this would result in an annual interest cost saving of about RM4.7 mln based on the average interest rate of 4.5% p.a. - the latter assuming that the proposed rights issue were to be fully taken up.

• With the following interest cost saving, we tweak our earnings forecast for 2018 higher by 3.3% to RM100.3 mln. We also maintain our BUY recommendation on Mitrajaya, but with a lower target price of RM1.40 (from RM1.65) after taking into consideration of the dilutive impact from the issuance of new shares. 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 Brief

• Xin Hwa Holdings Bhd has secured RM13.7 mln worth of contracts to transport precast segmental box girders and crossbeam for the construction of viaduct guideways and other associated works of the Mass Rapid Transit Sungai Buloh-SerdangPutrajaya Line (MRT Line 2).

• A total of six Letters of Award (LoAs) was awarded for the proposed jobs for RM13.7 mln, although the actual amount receivable will be dependent on the total tonnage of precast structures to be delivered over the period of the LoAs at a predetermined unit rate. (The Star Online)

• Top Glove Corp Bhd’s 4QFY17 net profit jumped 51.0% Y.o.Y to RM98.6 mln, from RM65.3 mln last year, underpinned by higher sales, which grew 25.0% Y.o.Y to RM902.4 mln vs. RM722.1 mln in 4QFY16. The group has also proposed a final dividend of 8.5 sen per share. (The Star Online)

• Palm oil machine manufacturer Muar Ban Lee Group Bhd has proposed a private placement of up to 10.0% of its issued shares to independent third party investor or investors, in order to raise up to RM10.0 mln to repay its bank borrowings. The cash call will involve issuing up to 9.1 mln new shares at an issue price to be determined and announced at a later date. (The Edge Daily)

• Loss-making M-Mode Bhd is planning to venture into construction business as part of its strategy to look for additional income and improved the financial position of the group. Currently, M-Mode is a provider of mobile content and data application services, producer and distributor of magazines, and a media advertising agent. (The Edge Daily)

• Symphony Life Bhd has been forced to re-acquire a property investment company sold to Octane Capital Sdn Bhd (OCSB) after failing to complete a land transfer condition in its original sale agreement. Both parties has inked a share sale agreement (SSA) on 13th October 2017 to buy back Midah Jaya Realty Sdn Bhd from OCSB for RM9.0 mln. Symphony is also expected to compensate OCSB for the legal fee and stamp duty OCSB had incurred in the initial SSA amounting to RM30,000, and up to RM300,000 funding cost. (The Edge Daily)

• Supercomnet Technologies Bhd is purchasing the remaining 80.0% stake in Supercomal Medical Products Sdn Bhd (SMP) in a related party deal. The group is acquiring the stake from Shiue Jong-Zone and persons acting in concert for RM80.0 mln (about 1.7x its market capitalisation of RM47.4 mln). Shiue is the Managing Director of Supercomnet, holding about 19.1% direct stake in the company.

• The acquisition will be paid via a cash payment of RM4.0 mln and the issue of 400.0 mln new Supercomnet shares — about 1.65x its current outstanding shares — at 19.0 sen apiece. This represents a 5.0% discount to its last closing share price of 20.0 sen. (The Edge Daily)

Source: Mplus Research - 16 Oct 2017