Quick Rebound In The Offing

• Despite opening higher at the start of the trading bell, the weakness in the second half of the trading session sent the FBM KLCI (-0.1%) lower yesterday on weakness in selective plantation heavyweights, whilst market sentiment was also dampened by the bond rout in China. The lower liner, however, ended mostly higher as the FBM Fledgling and FBM ACE added 0.04% and 0.1% respectively, while the broader market ended mixed.

• Market breadth turned slightly negative as decliners edged advancers on a ratio of 445-to-433 stocks. Traded volumes slipped 6.7% to 2.09 bln shares as market sentiment turned cautious.

• BAT (-60.0 sen) topped the big board decliners list, followed by KLK (-24.0 sen), Petronas Dagangan (-16.0 sen), Genting (-14.0 sen) and Sime Darby (-6.0 sen). Meanwhile, amongst the biggest decliners on the broader market include Scientex (-20.0 sen), Negri Sembilan Oil Palms (-17.0 sen), UMS-Neiken Group (- 13.0 sen), New Hoong Fatt (-13.0 sen) and Kimlun Corporation (-11.0 sen).

• Notable advancers on the broader market were Nestle (+RM1.82), Petron (+40.0 sen), Lysaght Galvanized (+36.0 sen), and Heng Yuan (+26.0 sen). Econpile added 16.0 sen after reporting a stellar set of quarterly earnings. On the FBM KLCI, IJM (+7.0 sen) Genting Malaysia (+4.0 sen), CIMB (+3.0 sen), KLCC (+3.0 sen) and MISC (+3.0 sen) anchored the winners list.

• Asia benchmark indices ended mostly lower yesterday as the Hang Seng sank 1.0% to close below the 30,000 psychological level. The weakness stemmed from the bond rout in China that resulted in the Shanghai Composite (-2.3%) suffering its biggest daily decline in 2017. The Nikkei, however, managed to add 0.5% on gains in financial shares. ASEAN stockmarkets, meanwhile, closed mostly higher.
• European closed mostly lower as the FTSE and DAX shed 0.02% and 0.1% respectively as market sentiment was affected by the selloff in Chinese equities. The CAC, however, added 0.5% on stronger-than-expected business confidence data that rose to 112 in November 2017 – the highest reading since December 2017. U.S stockmarkets were closed for the Thanksgiving holiday.

The Day Ahead

• Despite yesterday’s market weakness, we see a quick recovery over the near term as we do not think the weakness in China’s stocks will permeate to the region and would largely be contained. Therefore, we expect the key index to resume its base building exercise around the 1,720 level with potentially minor gains as mild bargain hunting activities could return.

• Hence, we think the FBM KLCI could retest the immediate resistance at 1,726 level, but we think the 1,730 level could serve to be a bigger hurdle for the key index to clear over the near term in the absence of sustainable catalysts. On the downside, we think that the 1,720 level will continue to serve as the main support and is unlikely to be breached after the recent selldown is already overdone.

• The lower liners and broader market shares, meanwhile, are likely to see the mixed trading environment sustaining as the upsides will likely be tempered by market players choosing to close out their positions ahead of the weekend.

Company Update

• Engtex Group Bhd’s 3Q2017 net profit declined 5.8% Y.o.Y to RM10.8 mln, dragged down by the softer demand for certain metal-related products amid the volatility in metal prices, whilst its hospitality division that was launched in 4Q2016 remains in the red. Revenue for the quarter, however, added 3.3% Y.o.Y to RM260.1 mln.

• For 9M2017, cumulative net profit decreased 9.8% Y.o.Y to RM42.3 mln. Revenue for the period fell marginally by 1.4% Y.o.Y to RM798.7 mln.

• The reported earnings came in slightly below our forecasts – accounting to 71.9% our previous full year estimated net profit of RM65.2 mln, while the reported revenue came within our expectations, accounting to 74.7% of our 2017 revenue forecast of RM1.07 bln. Meanwhile, Engtex has declared an interim dividend of 0.75 sen per share.

Comments

• With the reported earnings coming below our expectations, we trim our earnings estimates by 10.1% and 5.6% to RM58.6 mln and RM70.1 mln in 2017 and 2018 respectively after adjusting for margins contraction in the manufacturing segment, coupled with higher effective tax rate at 27.0% (vs 26.0% previously).

• However, we maintain our BUY recommendation on Engtex, but with a lower target price of RM1.35 (from RM1.40). Our target price was derived from ascribing a unchanged target PER of 8.0x to our 2018 earnings forecast of its manufacturing and wholesale and distribution businesses, in line with its historical PER. Its property development segment’s valuation remains unchanged at 0.6x its BV due to its relatively smallscale property development projects.

Company Brief

• PPB Group Bhd’s 3Q2017 net profit flatlined at RM381.0 mln, from RM381.5 mln a year ago, despite posting a 9.7% Y.o.Y increase in revenue to RM1.08 bln, from RM983.7 mln in the previous corresponding year.

• 9M2017 net profit, however, surged 51.1% Y.o.Y to RM829.5 mln, from RM549.0 mln in the previous corresponding period due to a significant increase in contribution from Wilmar, while revenue rose less than 1.0% Y.o.Y to RM3.17 bln, from RM3.16 bln previously.

• Genting Malaysia Bhd's 3Q2017 net profit plunged 65.2% Y.o.Y to RM193.4 mln, from RM555.7 mln, dragged down by lower adjusted EBITDA from the leisure and hospitality business in Malaysia and the reversal of a previously recognised impairment loss of RM49.2 mln from the UK operations and the recognition of a one-off gain of RM43.6 mln from the disposal of leasehold land in Malaysia last year. (The Star Online)

• Felda Global Ventures Holdings Bhd (FGV) made a turnaround with a 3Q2017 net profit of RM38.8 mln, from a net loss of RM73.6 mln a year earlier on lower cost of sales, despite revenue for the quarter falling to RM4.15 bln, from RM4.19 bln in the same quarter last year. It declared a dividend of five sen a share for FY17. (The Star Online)

• Axiata Group Bhd’s 3Q2017 net profit weakened 7.0% Y.o.Y to RM238.5 mln on higher minority interest, even though revenue came in higher at RM6.2 bln, in comparison to RM5.46 bln previously. (The Star Online)

• AirAsia X Bhd snapped six consecutive positive quarters and slipped into the red again with a 3Q2017 net loss of RM43.3 mln, from a net profit of RM11.0 mln a year ago – due to higher operating expenses. Revenue for the quarter however, grew 14.5% Y.o.Y to RM1.12 bln, from RM982.4 mln in 3Q2016.

• Consequently, cumulative 9M2017 net profit also shrunk to RM14.5 mln (- 92.4% Y.o.Y), from RM191.5 mln, despite a 17.8% Y.o.Y increase in revenue to RM3.34 bln. (The Star Online)

• Bumi Armada Bhd registered a 3Q2017 net profit of RM123.7 mln, from a net loss of RM96.7 mln previously, lifted by higher contribution from its floating production storage and offloading (FPSO) system and floating storage unit businesses, while revenue jumped 69.9% Y.o.Y to RM641.4 mln. (The Edge Daily)

• Petron Malaysia Refining & Marketing Bhd's 3Q2017 net profit more than doubled to RM106.1 mln, from RM46.8 mln in the same quarter last year, following a spike of 40.4% Y.o.Y in revenue to RM2.56 bln, from RM1.82 bln. (The Edge Daily)

• Lion Industries Corp Bhd posted a 1Q2018 net profit of RM27.8 mln against a net loss of RM2.5 mln a year earlier, due to the improved performance of its steel division. Quarterly revenue was up 24.0% Y.o.Y to RM637.3 mln on favourable market condition following the imposition of safeguard duties and the reduced steel export by China. (The Edge Daily)

• Kossan Rubber Industries Bhd reported a 34.0% Y.o.Y growth in 3Q2017 net profit to RM45.7 mln on higher volume of gloves sold, efficiency gains in the manufacturing process, as well as effective cost controls. Revenue for the quarter rose 18.1% Y.o.Y to RM489.2 mln, from RM414.0 mln in 3Q2016.
• Meanwhile, cumulative 9M2017 net profit came in higher at RM137.7 mln (+9.0% Y.o.Y), from RM126.3 mln in the previous corresponding year due to strong demand for rubber gloves and greater operational efficiency. Revenue also rose 20.3% Y.o.Y to RM1.48 bln, from RM1.23 bln a year earlier. (The Edge Daily)
• Malaysia Building Society Bhd (MBSB) saw its 3Q2017 net profit jump 73.9% Y.o.Y to RM100.7 mln, from RM57.9 mln previously, on lower allowance for impairment losses on financing/loans and advances, as well as a lower cost of funds. Revenue for the quarter, however, fell marginally by 1.6% Y.o.Y to RM816.9 mln, from RM830.3 mln a year ago.

• Cumulative 9M2017 net profit also surged 88.2% Y.o.Y to RM293.1 mln, although revenue fell marginally to RM2.44 bln, from RM2.45 bln in 9M2016. (The Edge Daily)

• Heitech Padu Bhd has secured a RM33.3 mln contract from the Companies Commission of Malaysia (SSM) for the supply, rental, implementation and maintenance of security infrastructure from 20th November 2017 until 21st August 2021. (The Edge Daily)

• Malaysia Steel Works (KL) Bhd's (Masteel) 3Q2017 net profit surged by more than 30-fold to RM38.7 mln, from RM1.2 mln in 3Q2016, boosted by higher selling prices of steel bar and increased sales volume. Quarterly revenue also gained 45.7% Y.o.Y to RM401.5 mln, from RM275.5 mln last year.

• The cumulative 9M2017 net profit also grew more than three times to RM63.3 mln, from RM17.0 mln a year ago, while revenue gained 20.8% Y.o.Y to RM1.04 bln, from RM861.8 mln previously.
• Separately, Masteel has also proposed to issue up to 106.8 mln bonus shares to its shareholders, on the basis of one bonus share-for-every three existing shares held. (The Edge Daily)

Source: Mplus Research - 24 Nov 2017