Further Recovery Ahead

• The FBM KLCI (+0.1%) managed to chalk up marginal gains, lifted by the final hour buying support on selective index heavyweights after trading in a volatile manner yesterday. The lower liners – the FBM Small Cap (-1.0%), FBM Fledgling (- 0.9%) and FBM ACE (-1.1%), however, all extended their slide, while the broader market ended mostly negative.

• Market breadth remained negative as decliners thumped advancers on a ratio of 684-to-240 stocks. Traded volumes, however, gained 14.9% to 2.27 bln shares as selling pressure amongst the lower liners escalates.

• Petronas Dagangan (+48.0 sen) topped the big board advancers list, followed by PPB Group (+32.0 sen), Telekom (+17.0 sen), RHB Bank (+16.0 sen) and KLK (+14.0 sen). Among the biggest gainers on the broader market were consumer products and plantations stocks like Nestle (+30.0 sen), Kawan Food (+15.0 sen), Boustead Plantations (+12.0 sen), Ta Ann Holdings (+11.0 sen) and IJM Plantations (+10.0 sen).

• In contrast, Heineken (-68.0 sen), Far East (-40.0 sen), MPI (-34.0 sen) and Top Glove (-20.0 sen) were the broader market biggest decliners. Zecon sank 4.5 sen after the proposed disposal of 49.0% equity stake in Zecon Medicare Sdn Bhd was delayed. Key losers on the FBM KLCI were BAT (-34.0 sen) Hong Leong Bank (- 30.0 sen), AmBank (-8.0 sen), Petronas Chemicals (-5.0 sen) and Hong Leong Financial Group (-4.0 sen).

• Asia benchmark indices rebounded as the Nikkei added 0.7%, buoyed by the rally in banking and automakers and factory automation shares. The Hang Seng jumped 1.9% higher to close marginally below the 30,000 psychological level, while Chinese equities shook off the clampdown on shadow banking as Shanghai Composite added 0.5%. ASEAN stockmarkets, meanwhile, closed mostly higher.
• U.S stockmarkets extended their gains overnight to close at fresh record high levels, driven by the rally in technology shares, coupled with the solid existing home sales data for October 2017. On the broader market, the S&P 500 added 0.7% after briefly re-testing the 2,600 psychological level, while the Nasdaq jumped 1.0% higher.
• Earlier, European benchmark indices – the FTSE (+0.3%), CAC (+0.5%) and DAX (+0.8%) all recouped their earlier weakness to extend their gains, taking cue from the positive performance across Asian stockmarkets. Investors also shrugged off the political instability in Germany and focused on its solid economic fundamental and robust earnings reports instead.

The Day Ahead

• We see further near term recovery after the FBM KLCI managed to eke-out last minute gains to climb back to the 1,720 level. We think the record closing on Wall Street could provide more near term impetuses for the key index to sustain its recovery and to regain some of its footing.

• Nevertheless, we still think the near term upsides could be blighted by a still cautious market undertone that could sap the recovery strength. As it is, yesterday’s gains were selective and even though we think the buying could improve over the near term, we also think market players could be tempted to lockin profits as sustainable catalysts are still scant. Therefore, the 1,725 level will be the immediate resistance for now, followed by the 1,730-1,733 levels.
• While the index heavyweights have lifted the market, the broader market and lower liners were still in a state of flux yesterday. However, we see some buying interest returning in tandem with the more positive market undertone, but quick profit taking activities could limit their gains.

Company Update

• AWC Bhd’s 1QFY18 net profit fell 6.9% Y.o.Y to RM5.1 mln, from RM5.4 mln in the same quarter last year, mainly due to weaker contribution from its engineering and waste management divisions, after the delivery of big-ticket projects in 1QFY17, coupled with delays in the aforementioned divisions, albeit slightly offset by improved performance from the IFM segment. Revenue, meanwhile, came in 1.4% Y.o.Y lower RM66.2 mln, from RM67.1 mln previously.

• AWC’s reported earnings were below our expectations, accounting to only 21.7% and 20.4% of our FY18 forecast net profit of RM23.3 mln and revenue of RM324.6 mln respectively. The difference was due to unexpected delays in the execution of projects, although, we expect AWC’s earnings to play catch up in coming quarters.

Comments

• Despite the softer quarter, we maintain a positive outlook on AWC’s earnings growth trajectory with a five-year CAGR of 30.6% to RM26.6 mln in FY19, supported by a strong orderbook of slightly more than RM1.0 bln and solid balance sheet, with a sizable cash pile of RM67.5 mln and minimal borrowings.

• Consequently, we leave our FY18 revenue forecast unchanged at RM324.6 mln, but tweaked our FY18 earnings (+0.8%) to include a slightly higher interest income. 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 our revised FY18 EPS of 8.8 sen (from 8.7 sen) – a discount to AWC’s nearest competitor, UEM Edgenta Bhd, due to the former’s smaller market capitalisation.

Company Brief

• Boustead Plantations Bhd's 3Q2017 net profit leapt by more than 15-fold to RM562.4 mln, from RM37.4 mln last year, mainly due to gains on land disposal amounting to RM554.9 mln, while revenue fell 8.0% Y.o.Y to RM183.4 mln vs. RM199.3 mln in 3Q2016.

• Consequently, the one-off land gain boosted cumulative 9M2017 net profit to RM628.8 mln, from RM177.5 mln in the previous corresponding period, while revenue rose 6.0% Y.o.Y to RM541.9 mln, compared to RM511.2 mln previously The group has also declared a third interim dividend of 3.0 sen per share, together with a special dividend of 7.0 sen, payable on 19th December, 2017.. (The Star Online)

• Sime Darby Bhd's shares will be suspended from trading on 27th November 2017 to facilitate the distribution of shares under the group's demerger exercise.

• The proposed demerger involves the creation of two additional listed companies — Sime Darby Plantation Bhd and Sime Darby Property Bhd, and the distribution of shares in the two new entities to existing Sime Darby shareholders.

• Sime Darby shares will resume trading on the day of listing of the two new additional companies - tentatively fixed on 30th November 2017. (The Edge Daily)

• IJM Corp Bhd is planning to build a 27- storey purpose-built commercial building valued at RM500.0 mln at the Tun Razak Exchange (TRX), following the a share sale and purchase agreement for the acquisition of Fairview Valley Sdn Bhd, a subsidiary of TRX City Sdn Bhd. (The Edge Daily)

• Hock Seng Lee Bhd (HSL) has been awarded a RM56.6 mln contract from XFAB Sarawak Sdn Bhd to undertake renovation and extension works to an existing three-storey X-FAB administration building with associated external works at Sama Jaya Free Industrial Zone in Kuching, Sarawak. The project was secured via an open tender exercise, and is slated to commence in December. (The Edge Daily)

• Gabungan AQRS Bhd has received a letter of intent from KotaSAS Sdn Bhd to build 1,004 landed homes in Kota Sultan Ahmad Shah (KotaSAS), Kuantan, Pahang worth RM189.2 mln. The project will be divided into four phases, with Phase 1 to commence in 2018, while Phases 2, 3 and 4 will commence in 2019, 2020 and 2021 respectively. All phases is expected to be completed within two years from its commencement date. (The Star Online)

• Dialog Group Bhd's 1QFY18 net profit nearly doubled to RM160.9 mln, from RM81.3 mln a year ago. The strong bottomline was mainly due to a fair value gain of investment properties at RM65.6 mln, following the acquisition of the remaining 45.0% shareholding in a jointly-controlled entity, Centralised Terminals Sdn Bhd, which has been renamed as Dialog Terminals Sdn Bhd. Revenue for the quarter, meanwhile, grew by 19.1% Y.o.Y to RM778.7 mln, from RM653.6 mln last year. (The Star Online)
• UOA Development Bhd posted a 18.2% drop in its 3Q2017 net profit to RM90.4 mln, from RM110.4 mln last year, dragged by higher expenses, despite a 14.0% Y.o.Y increase in revenue to RM261.6 mln, from RM229.6 mln in the same quarter a year ago.
• 9M2017 net profit narrowed 9.5% Y.o.Y to RM299.4 mln, from RM330.8 mln previously, although revenue gained 21.6% Y.o.Y to RM882.3 mln, from RM725.6 mln in the previous corresponding year. (The Edge Daily)

• Press Metal Aluminium Holdings Bhd posted a 25.5% Y.o.Y gain in its 3Q2017 net profit to RM154.4 mln, from RM123.0 mln a year earlier, on higher metal price and a stronger U.S. dollar. Quarterly revenue also surged 22.4% Y.o.Y to RM2.13 bln, from RM1.74 bln last year.

• For 9M2017, net profit spiked 24.5% Y.o.Y to RM452.6 mln, from RM363.7 mln in 9M2016, in-tandem with the growth in revenue, which added 30.1% Y.o.Y to RM6.02 bln, from RM4.63 bln a year earlier. (The Edge Daily)

• Heineken Malaysia Bhd registered a 15.7% Y.o.Y hike in its 3Q2017 net profit to RM65.9 mln, from RM56.9 mln in the same quarter in FY16 – led higher sales volume and favourable brand mix, while revenue for the quarter improved 32.4% Y.o.Y to RM509.6 mln, from RM384.8 mln previously.

• YTD, net profit grew marginally by 4.6% Y.o.Y to RM176.4 mln, from RM168.6 mln a year ago, while revenue inched up 1.1% Y.o.Y to RM1.32 bln from RM1.3 bln. (The Edge Daily)
• Serba Dinamik Holdings Bhd’s 3Q2017 net profit jumped 51.0% Y.o.Y to RM68.0 mln, from RM45.0 mln, attributed to strong performance from its operation and maintenance, and its engineering, procurement, construction and commissioning segments. Quarterly revenue was also strong, 28.0% Y.o.Y higher at RM653.3 mln, from RM511.5 mln in 3Q2016. Consequently, Serba declared a thirdinterim dividend of 1.5 sen per share, to be paid on 20th December 2017.
• Cumulative 9M2017 net profit almost quadrupled to RM229.5 mln, from RM58.6 mln, as revenue more than doubled to RM1.92 bln, from RM663.5 mln in 9M2016. (The Edge Daily)

Source: Mplus Research - 22 Nov 2017