Oversold Market May Prompt Rebound

• The FBM KLCI (-0.1%) remained in the red for the fifth straight session, dragged down by the weakness in selective telco heavyweights yesterday. The lower liners – the FBM Small Cap (-1.2%), FBM Fledgling (-0.7%) and FBM ACE (-2.5%), all extended their losses, while the broader market closed mostly negative.

• Market breadth remained negative as decliners outpaced advancers on a ratio of 693-to-253 stocks. Traded volumes, however, gained 4.4% to 2.44 bln shares as the selloff among the lower liners intensifies.

• Half of the key index constituents fell, dragged down by Axiata (-14.0 sen), followed by Hong Leong Financial Group (-10.0 sen), BAT (-10.0 sen), Genting (-8.0 sen) and CIMB (-8.0 sen). Among the biggest underperformers on the broader market were SAM Engineering & Equipment (-42.0 sen), Aeon Credit (-30.0 sen), Dutch Lady (-30.0 sen), Ge Shen (- 29.0 sen) and Press Metal (-22.0 sen).

• Major advancers on the broader market include Kossan (+43.0 sen), KESM Industries (+38.0 sen), PMB Technology (+33.0 sen) and Hock Heng Stone (+24.5 sen). Sapura Energy added 2.0 sen after bagging five contracts worth a combined RM1.47 bln. Key winners on the big board were Petronas-related stocks like Petronas Gas (+30.0 sen), Petronas Dagangan (+28.0 sen) and Petronas Chemicals (+5.0 sen), followed by Maxis (+4.0 sen) and Public Bank (+2.0 sen).

• Asia benchmark indices ended mostly higher yesterday as the Nikkei (+1.5%) snapped a losing streak of six straight days on bargain hunting activities. The Hang Seng added 0.6% to reclaim the 29,000 psychological level, but the Shanghai Composite slipped 0.1% after trading in a lackluster manner. ASEAN stockmarkets, meanwhile, closed mostly higher.
• Wall Street rebounded overnight as the Dow (+0.8%) recovered all its previous session losses, driven by upbeat industrial production data (+2.9% Y.o.Y) coupled with stronger-than-expected earnings from Wal-Mart (+10.9%) and Cisco (+5.2%). On the broader market, the S&P 500 added 0.8%, lifted by the telecommunication and consumer staples sector, while the Nasdaq jumped 1.3% higher.
• Earlier, European benchmark indices – the FTSE (+0.2%), CAC (+0.7%) and DAX (+0.6%) all rebounded as the Eurozone’s inflation rate in October 2017 rose 1.4% Y.o.Y – in line with market expectations. Gains on the U.K, market, however, was limited due to the lackluster retail sales data that fell 0.3% Y.o.Y in October 2017.

The Day Ahead

• The key index has broken successive support level, the latest being the 1,720 level and this is continuing to leave the market is a dour mood with the psychological support at 1,700 points now coming into play. However, we also think that the market is ripe for a rebound after the successive falls that has left the market oversold. Therefore, we think there should be a rebound soon to adjust from oversold.
• Nevertheless, we think any rebound will be weak for now as the market environment is still largely cautious and the recovery may be limited to the 1,720 and 1,730 levels for now. We think the positive overnight performance on key global markets will help to provide some impetus for the near-term recovery.

• We also think that the lower liners and broader market shares will see a mild recovery after their recent falls on bargain hunting activities, but we also see their upsides limited by quick profit taking activities.

Company Update

• Econpile Holdings Bhd has secured its first light rail transit (LRT) contract to undertake piling and infrastructure works for the LRT Bandar Utama-Klang line (LRT3) worth RM208.7 mln from Gabungan Strategik Sdn Bhd — the construction unit of Gabungan AQRS Bhd.
• Econpile will undertake the bored piling and general infrastructure works from Bandar Utama, Petaling Jaya, to Johan Setia, Klang, under the "GS04 Guideway, Stations Park and Ride, Ancillary Buildings and Other Associated Works" package. The overall duration of the contract is approximately 34 months. (The Edge Daily)

Comments

• The abovementioned contract marks the third major contract secured by the group in FY18, bringing its total orderbook replenishment to RM274.7 mln mln – 45.8% of our targeted orderbook replenishment rate of RM600.0 mln for FY18. We expect the aforementioned contract could generate a pretax profit margin between 7.0%-9.0%, which is similar with margins on the KVMRT 1 & 2 project.

• The award of the new projects brings its total outstanding construction orderbook to approximately RM1.20 bln, implying a healthy orderbook-to-cover ratio of 2.1x against FY17 revenue of RM581.9 mln, which will provide earnings visibility over the next 2-3 years.

• With the contract falling within our targeted orderbook replenishment rate, we leave our earnings forecast unchanged. We also maintain our HOLD recommendation with an unchanged target price of RM3.15 by ascribing a unchanged target PER of 16.5x to its FY18 EPS of 19.2 sen.

Company Brief

• Sime Darby Bhd‘s 1QFY18 net profit surged 152.0% Y.o.Y to RM1.32 bln, from RM522.0 mln a year ago, boosted by strong contributions from its plantation and property divisions, while revenue gained 17.4% Y.o.Y to RM8.14 bln, from RM6.93 bln last year. (The Star Online)

• Vitrox Corp Bhd’s 3Q2017 net profit grew 41.2% Y.o.Y to RM22.4 mln, from RM15.9 mln a year earlier, in-tandem with stronger revenue, which gained 46.3% Y.o.Y to RM84.4 mln, from RM57.6 mln previously.

• The group has also declared a tax-free interim dividend of 1.5 sen per share, with the entitlement and payment dates to be finalised later. (The Star Online)

• Salcon Bhd has clinched a pipe replacement contract worth RM17.2 mln from Pengurusan Air Selangor Sdn Bhd. The 15-month job is expected to be completed in February 2019. (The Edge Daily)

• Voir Holdings Bhd has secured a subcontract worth RM80.4 mln to build two blocks of office suites, a podium, twostorey shops, a recreational centre and a carpark in Sunway Semenyih, Selangor, from Kuasa Lumpadang Sdn Bhd. The 35-month project is slated to commence on 20th November 2017 until 19th October 2020. (The Edge Daily)
• LBS Bina Group Bhd has been granted additional usage rights from China's Development and Reform Bureau of Gaoxin District for its Zhuhai International Circuit (ZIC) land, which currently occupies 264 ac. in Zhuhai, China. The aforementioned land, which is currently being used as a racing circuit, will be divided into two plots, mainly East Land and West Land. (The Star Online)
• Sapura Industrial Bhd posted its second consecutive quarterly loss, with a 3Q2017 net loss of RM1.2 mln, from a 3Q2016 net profit of RM1.6 mln, weighed down by lower revenue and higher operating costs. Revenue for the quarter, meanwhile, fell 10.2% Y.o.Y to RM50.4 mln, RM56.1 mln in the previous corresponding period. (The Edge Daily)

• SCH Group Bhd has terminated three Memoranda of Understanding (MoUs) it had signed in relation to downstream quarry activity. The previously proposed collaborations with three companies on the excavation and distribution of quarry sand and deposits from flood mitigation ponds in Kuala Lumpur were mutually terminated by the parties. (The Edge Daily)

• R&A Telecommunications Group Bhd's external auditors, Messrs Siew Boon Yeong & Associates have expressed an audit disclaimer of opinion on its audited financial statements for the financial year ended 30th June 2017 (FY17), as it was unable to ascertain the completeness of the recorded liabilities and related contingent liabilities as at June 30 2017 arising from various legal proceedings to R&A's financial statements.

• The auditors also added that there was insufficient appropriate audit evidence to support the going concern basis of preparation of R&A's financial statements. (The Edge Daily)
• Ancom Bhd is selling its 25.0% equity stake in its media and advertising arm, Puncak Berlian Sdn Bhd to VGI Global Media (M) Sdn Bhd, for RM13.2 mln to make way for a strategic investor which is expected to bring in additional expertise and technologies that will strengthen operational capabilities. (The Edge Daily)
• SWS Capital Bhd Deputy Managing Director (MD), Teoh Han Chuan has been promoted to be the MD of the company, replacing Neo Chee Kiat, who has been re-designated as a NonIndependent and Non-Executive Director.

• To recap, Mr. Neo was appointed as the MD of the company on 30th November, 2003 and is the son of Neo Tiam Hock, a major shareholder of the company. (The Edge Daily)

Source: Mplus Research - 17 Nov 2017