• The FBM KLCI ended in the red after lingering in the negative territory for the entire session, weighed down by concerns on the increasing financial risk of Chinese corporates amid rising bond yields. All the lower liners also finished lower, led by the FBM ACE (-0.9%), while the Industrial Products (+0.1%), Technology (+0.9%) and the Properties (+0.1%) sub-sectors defied the general tepid sentiment to close higher on Tuesday.
• Market breadth stayed negative as losers beat winners on a ratio of 613-to-286 stocks. Traded volumes, however, gained 9.6% to 1.8 bln shares, on extended selling-pressure in Asian stockmarkets, weighed down by concerns on rising bond yields.
• Meanwhile, blue-chip losers include BAT (-34.0 sen), which fell for the six consecutive session, followed by Genting (-19.0 sen), Kuala Lumpur Kepong (-12.0 sen), MISC (-12.0 sen) and Ambank (-11.0 sen). Other decliners were KESM (-34.0 sen), Hengyuan Refining (-26.0 sen), Aeon Credit (-22.0 sen), Malaysia Airports (-20.0 sen) and Malaysian Pacific Industries (-20.0 sen).

• On the broader market, notable outperformers include United Plantations (+RM1.06), Tong Herr Resources (+33.0 sen), Inari (+17.0 sen), while both Latitude Tree and Nestle gained 16.0 sen each. Petronas-linked counters like Petronas Dagangan (+18.0 sen) and Petronas Chemicals (+7.0 sen) provided support to the key-index yesterday, followed by Hong Leong Bank (+10.0 sen), Astro (+5.0 sen) and Hong Leong Financial Group (+4.0 sen).

• Asian equities closed mixed, as investors await a series of global economic data later this week. The Nikkei closed narrowly in the red after a choppy trading session, weighed down by Toray Industries following scandals of data falsification, which offset gains made in defense stocks. The Hang Seng was also downward pressured after China’s regulator temporarily suspended the approval of new Hong Kong-bound mutual funds on fears of near-term market correction. On the other hand, the Shanghai Composite index (+0.3%) rallied, boosted by information technology and consumer staples-related stocks. ASEAN stockmarkets also closed mostly higher yesterday.

• Wall Street shook off the negative sentiments from North Korea’s most recent missile test, closing at fresh record highs - backed by optimisms on U.S. tax reforms and gains in mining counters. Consequently, the Dow gained 1.1% - helped by gains in JP Morgan Chase (+3.5%). On the broader market, the S&P500 (+1.0%) and the Nasdaq (+0.5%) also rallied.

• Earlier, European equities advanced, as investors digested the recent results of stress tests for U.K. banks and comments from Jerome Powell - the nominee for the Chairman of the Federal Reserve. The FTSE rose 1.0%, albeit slightly dampened by losses in mining stocks. Meanwhile, the DAX and the CAC notched 0.5% and 0.6% gains to closed firmly in the green on Tuesday.

The Day Ahead

• The general market environment remains weak with few positive catalysts for the market to post a decent recovery, thus leaving the key index to linger below the 1,720 level. We see further near term retreat as regional sentiments could now be affected by North Korea’s latest missile launch and lingering concerns over China’s debt issue that is likely to leave a guarded condition on Malaysian stocks. At the same time, the latest round of corporate results is showing more weak earnings performance, further dampening the market’s ability to stage a recovery.

• With the dour conditions taking hold, the 1,710 and 1,700 points supports are coming into play, where the latter will serve as the major support. Already, the market is oversold and a rebound is due, but the uncertain market environment will keep the market in an oversold position for longer.

• The weak market environment will also extend to the broader market and lower liner stocks as retail players will continue to stay on the sidelines until sentiments improve. Therefore, we see the mixed-tolower trading environment persisting among the above stocks.

Company Update

• Mitrajaya Holdings Bhd’s 3Q2017 net profit slipped 21.0% Y.o.Y to RM21.2 mln, dragged down by a provision for cost overun for the RAPID project, coupled with rising material and labour cost that resulted in the erosion of construction margins. Revenue for the quarter, however, gained 18.9% Y.o.Y to RM299.0 mln.

• For 9M2017, cumulative net profit declined 15.7% Y.o.Y to RM63.2 mln. Revenue for the period, however, improved 29.2% Y.o.Y to RM894.9 mln. The reported earnings only amounted to 67.1% of our previous 2017 earnings forecast of RM94.2 mln, while revenue for the period came within our expectations, accounting to 77.5% of our RM1.15 bln forecast. Comments

• With the reported earnings coming below our expectations, we slashed our earnings forecast for 2017 and 2018 by 12.2% and 22.0% to RM82.7 mln and RM75.8 mln respectively to account for the additional construction cost. We, however, maintain our BUY recommendation on Mitrajaya but with a lower target price of RM0.95 (from RM1.20).

• Our target price was derived from sumof-parts valuation as we ascribed a target PER of 13.0x to its 2018 (fully diluted) construction earnings, while its local and overseas property development units are valued at an unchanged 0.8x their respective book values.

• OCK Group Bhd’s 3Q2017 net profit gained 26.3% Y.o.Y to RM6.9 mln, lifted by higher contribution from its telecommunication network services segment from the Myanmar venture, coupled with the consolidation of newly acquired South East Asia Telecommunication Holdings Pte Ltd’s (SEATH) earnings. Revenue for the quarter grew 22.9% Y.o.Y to RM125.2 mln.

• For 9M2017, net profit improved 20.3% Y.o.Y to RM17.6 mln. Revenue for the period climbed 19.2% Y.o.Y to RM351.0 mln. The reported earnings accounted to 52.7% of our full year estimated net profit of RM33.4 mln, while the reported revenue was at 66.1% of our estimated revenue forecast of RM530.8 mln.

Comments

• We view that the 3Q2017 to be largely in line with our expectations as the cumulative nine-month results traditionally makes up slightly above 50.0% of its full year earnings over the past years due to seasonal factors. Hence, we leave our earnings estimates unchanged and we maintain our BUY recommendation on OCK with an unchanged target price of RM1.00.

• We adopt a sum-of-parts (SOP) approach to derive our target price as we valued its telecommunication network services and green energy & power solutions business segments on a discounted cash flow method (key assumptions include a WACC of 9.0%, terminal growth rate of 1.5%) to reflect its ability to generate recurring revenues and steady earnings growth over the longer term. Meanwhile, we ascribe a 15.0x target PER to both its fully-diluted trading and mechanical & electrical engineering services businesses, based on their potential earnings contribution in 2018.

Company Brief

• CIMB Group Bhd's 3Q2017 net profit rose 10.6% Y.o.Y to RM1.13 bln, boosted by higher interest income and net non-interest income. Revenue for the quarter increased 7.2% Y.o.Y to RM4.42 bln.

• For 9M2017, cumulative net profit gained 25.8% Y.o.Y to RM3.41 bln. Revenue for the period improved 11.5% Y.o.Y to RM13.11 bln. (The Star Online)

• AMMB Holdings Bhd’s 2QFY18 net profit fell 6.0% Y.o.Y to RM331.5 mln on higher net impairments of RM10.7 mln for doubtful sundry receivables. Revenue for the quarter, however, rose 1.2% Y.o.Y to RM2.12 bln.

• For 1HFY18, cumulative net profit declined 2.3% Y.o.Y to RM659.7 mln. Revenue for the period, however, increased marginally by 1.0% Y.o.Y to RM4.21 bln. An interim dividend of five sen per share was declared. (The Star Online)

• IJM Corporation Bhd’s 2QFY18 net profit fell 32.3% Y.o.Y to RM110.9 mln due to lower contributions from its manufacturing and plantations segment. Revenue for the quarter, however, rose 7.2% Y.o.Y to RM1.59 bln.

• For 1HFY18, its net profit fell 15.1% Y.o.Y to RM237.3 mln, but revenue for the quarter gained 9.4% Y.o.Y to RM3.06 bln. A dividend of three sen per share was announced. (The Star Online)

• Ta Ann Holdings Bhd's 3Q2017 net profit declined 55.6% Y.o.Y to RM23.1 mln on lower exports of plywood products and logs. Revenue for the quarter dipped 11.9% Y.o.Y to RM308.2 mln.

• For 9M2017, cumulative net profit added 2.3% Y.o.Y to RM95.8 mln, while revenue for the quarter climbed 5.1% Y.o.Y to RM880.1 mln. (The Edge Daily)

• Compugates Holdings Bhd’s whollyowned unit,Compugates Development and Mining Sdn Bhd (CDMSB) will jointly develop a 25.1 ha. agriculture land in Dengkil, Selangor, with Jade Classic Sdn Bhd. The land will be developed into a mixed development, subject to the approval of the authorities, comprising of 500 houses, 1,100 Rumah Selangorku homes and four blocks of 600 units of high rise mixed residential and commercial units.

• The estimated gross development value (GDV) of the project is RM775.0 mln. The group targets to launch the project in 2020, while the development is expected to take at least 10-14 years to complete. (The Edge Daily) 
• UEM Edgenta Bhd’s 3Q2017 net profit declined 24.2% Y.o.Y to RM38.7 mln as it incurred higher expenses and finance costs. Revenue for the quarter, however, improved 40.1% Y.o.Y to RM523.1 mln.

• Cumulative 9M2017 net profit gained 46.9% Y.o.Y to RM93.4 mln, while revenue for the quarter climbed 35.5% Y.o.Y to RM1.45 bln. (The Edge Daily)

• Taliworks Corp Bhd’s 3Q2017 net profit declined 49.0% Y.o.Y to RM10.0 mln as the previous corresponding period’s earnings included a one-off toll hike compensation of RM9.5 mln on the Cheras-Kajang Highway. Correspondingly, revenue for the quarter fell 11.3% Y.o.Y to RM74.3 mln.

• For 9M2017, its net profit sank 76.3% Y.o.Y to RM22.6 mln, albeit revenue for the period improved marginally by 0.5% Y.o.Y to RM236.9 mln. A third interim single-tier dividend of two sen per share, payable on 10th January 2018, was declared. (The Edge Daily)

• UMW Holdings Bhd’s 3Q2017 net loss narrowed to RM29.4 mln from RM128.8 mln in the previous corresponding quarter, due to lower operating expenses. Revenue for the quarter, however, dipped 4.9% Y.o.Y to RM2.67 bln.

• For 9M2017, net loss widen to RM218.5 mln, from RM124.4 mln in the previous corresponding period. Revenue for the period, however, grew 7.2% Y.o.Y to RM8.19 bln. (The Edge Daily)  

Source: Mplus Research - 29 Nov 2017