• The FBM KLCI (+0.5%) closed firmly higher for the second straight session, lifted by bargain-hunting activities in Genting-affiliated blue chips. All the lower liners, however, were splashed in red – led by the FBM Ace (-0.6%), while the broader market finished mixed.

• Market breadth continued to be sluggish as losers beat winners on a ratio of 499- to-378 stocks. Traded volumes also fell marginally by 0.7% to 3.02 bln shares, amid the lack of fresh trading catalysts.

• Significant key-index advancers were Petronas Gas (+54.0 sen), Genting Malaysia (+25.0 sen), IHH Healthcare (+12.0 sen) and Hong Leong Financial Group (+8.0 sen). Genting (+48.0 sen) also rallied, following upbeat quarterly earnings by its Singaporean-unit. Other winners, meanwhile, include semiconductor manufacturers like Malaysian Pacific Industries (+26.0 sen) and KESM Industries (+20.0 sen), followed by Hartalega (+24.0 sen), Padini (+22.0 sen) and Allianz Malaysia (+18.0 sen).

• On the flip side, broader market underperformers include Aeon Credit Service (-26.0 sen), Gamuda (-26.0 sen), Lafarge Malaysia (-24.0 sen), Nestle (- 20.0 sen) and New Hoong Fatt (-20.0 sen). Meanwhile, Petronas Dagangan (- 12.0 sen), IOI Corporation (-8.0 sen), Kuala Lumpur Kepong (-8.0 sen), BAT (- 6.0 sen), PPB Group (-6.0 sen).

• Key regional benchmark bourses finished in the positive territory, boosted by the bullish sentiment spilled over from Wall Street overnight. The Nikkei jumped 1.7% - led by the rally in energy stocks. The Hang Seng also notched 1.4% gain, with all of its nine sectors in the green, while the Shanghai Composite index closed 0.8% higher at 3,413.6 points. ASEAN equities followed suit, closing broadly higher.

• Wall Street inched higher, boosted by media stocks, as investors cheered the potential merger of Disney and Century Fox. The Dow hit another new record high, albeit marginally, while the S&P 500 flatlined and the Nasdaq (-0.3%) fell slightly on profit-taking activities.

• Key European indices retreated on Tuesday as investors digested soft quarterly earnings report and lower-thanexpected U.K. retail sales. The FTSE drop 0.7%, dragged down by losses in retailers. Meanwhile, Germany’s DAX (-0.7%) fell on losses in retail, technology and F&B stocks, alongside France’s CAC (-0.5%), which closed in the red as well.

The Day Ahead

• Yesterday’s recovery was stronger-thanexpected on the back of bargain hunting on selective index heavyweights. Elsewhere, however, conditions were mostly muted as market breadth stayed negative with profit taking escalating among the lower liners and broader market shares.

• It appears that the two-speed market conditions is likely to prevail over the near term with index linked stocks likely to head higher as their recovery continues after the recent selldown, while profit taking activities could still permeate to the rest of the market.

• Hence, we see the key index pushing higher to the 1,756 level as the recovery among the index-linked stocks continue, before making a pass at the 1,760 resistance. On the downside, the immediate support is pegged at the 1,745 level. ? As noted, we think the lower liners and broader market shares could still endure profit taking activities after their recent upsides. Rotational plays are also seeing less interest after the price of many of the above stocks have risen lately, thus providing fewer trading opportunities for retail players.

Company Update

• Hartalega posted a 59.2% Y.o.Y spike in 2QFY18 net profit to RM113.3 mln, from RM71.2 mln in the same quarter last year – due to higher sales volume and improvements in productivity, coupled with a net foreign exchange gain of RM7.8 mln. Revenue for the quarter also jumped 33.8% Y.o.Y to RM584.6 mln vs. RM437.0 mln last year. Following the stellar results, the group declared a first interim dividend of 3.5 sen per share (from 2.0 sen per share in 2QFY17), payable on 28th December 2017.

• Cumulative 1HFY18 net profit also surged 64.6% Y.o.Y to RM127.4 mln, compared to RM82.3 mln a year earlier, while revenue rose 41.4% Y.o.Y to RM1.19 bln, from RM838.8 mln in 1HFY17. The exceptional growth in its bottomline was attributed to stronger sales contribution, higher operation efficiency and a net foreign exchange gain of RM15.7 mln (from a net forex loss of RM12.0 mln previously).

• The reported earnings and revenue were within our expectations - accounting to 50.7% of our FY18 estimated net profit of RM418.1 mln and 50.2% of our FY18 revenue of RM2.38 bln. Although the group’s 2QFY18 results were in-line with our estimates, we raised our FY18 revenue and earnings estimates marginally by about 1.0% after tweaking our sales volume forecast.

Comments

• Moving forward, we expect better results from Hartalega in the 2HFY18, mainly driven by stronger demand for nitrile gloves, in-view of China’s strict environmental controls amid the winter season in China and higher ASPs.

• Consequently, we upgrade our recommendation on Hartalega to a BUY call (from Hold) with a target price of RM9.00 (from RM7.55), after rolling over our valuations to FY19 earnings, based on an unchanged target PER of 31.0x on its FY19 EPS of 29.1 sen.

• Hartalega’s target PER is at a premium to its competitors, which we think is justified in-view of its concrete position as a market leader in the nitrile glove segment, superior operational efficiency and lucrative margins.

Company Brief

• Nestle (M) Bhd’s 3Q2017 net profit fell 25.5% Y.o.Y to RM119.7 mln, mainly due to the increase in raw material prices and the continued weakness of the Ringgit. Revenue for the quarter, however, grew 4.8% Y.o.Y to RM1.32 bln.

• For 9M2017, cumulative net profit declined 10.2% Y.o.Y to RM512.3 mln. Revenue for the period, however, added 4.3% Y.o.Y to RM3.98 bln. (The Star Online)

• Fraser & Neave Holdings Bhd’s (FNH) 4QFY17 net profit sank 60.3% Y.o.Y to RM19.6 mln, due to restructuring costs and lower revenue in its Malaysian operations. Revenue for the quarter was flat at RM976.3 mln.

• For FY17, cumulative net profit fell 16.1% Y.o.Y to RM323.4 mln, while revenue for the year slipped 1.6% Y.o.Y to RM4.10 bln. (The Star Online)

• Gas Malaysia Bhd has partnered Sime Darby Bhd to set up a joint venture company (JV) to provide electricity, steam, chilled water, hot water, hot air and/or any other utilities to customers. The JV would diversify Gas Malaysia’s business from gas distribution to energy business in future. (The Edge Daily)

• GHL Systems Bhd has proposed to buy a 31.2% stake in Vietnamese mobile payment company, MPOS Global Ltd for US$3.3 mln (RM14.1 mln). GHL expects the acquisition to be completed in 4Q2017 and intends to finance the acquisition via internally-generated funds. (The Edge Daily)

• O&C Resources Bhd is purchasing a 1.0 ac. freehold land in Petaling Jaya for RM24.6 mln from Tropicana City Sdn Bhd (TCSB) to diversify its business operation into property development. O&C Construction Sdn Bhd, a whollyowned subsidiary of O&C, acquired the land from a subsidiary of Tropicana Corp Bhd. The purchase is expected to be funded via bank facilities and internally-generated funds. (The Edge Daily)

• Key Alliance Group Bhd has signed an exclusive reseller agreement with Digital Paper Sdn Bhd, a licensed distributor of antivirus software Kaspersky to its cloud-based customers. The one-year agreement will enable it to grow its cloud service business in Malaysia. Progenet would also be able to integrate the antivirus software into its suite of products offering end-to-end solutions to cloud- based customers. (The Edge Daily)

• Astro Malaysia Holdings Bhd’s Go Shop has partnered with DiGi.Com Bhd’s digital arm Digi-X to offer the latter’s eCash on Delivery (e-COD) solution, vcash. Go Shop customers can have cashless payments and more convenience when shopping on Go Shop’s TV, online and mobile platforms.

• The first of Astro’s e-COD solutions with Digi’s vcash app targets 10.0% of its customer base for cashless payments in 2018. Go Shop’s e-COD will be launched in phases, with the initial phase to commence in the Klang Valley in November 2017, followed by a nationwide roll out in March 2018. (The Edge Daily)  

Source: Mplus Research - 8 Nov 2017