Still On A Sideway Trend

• The FBM KLCI (-0.1%) slipped into the red after erasing all its intraday gains yesterday, bucking the positive performance across key regional indices. The lower liners – the FBM Small Cap (+0.6%), FBM Fledgling (+0.2%) and FBM ACE (+0.4%), however, all advanced, while the broader market ended mixed with the Technology sector (+1.1%) outperforming its peers.

• Market breadth turned positive as gainers outstripped losers on a ratio of 444-to- 409 stocks, while 372 counters traded unchanged. Traded volumes, however, fell 10.4% to 1.65 bln shares amid the lack of fresh local catalysts.

• Key losers on the FBM KLCI were BAT (- 38.0 sen), KLK (-8.0 sen), Genting (-8.0 sen), RHB Bank (-7.0 sen) and IJM (-7.0 sen). Amongst the biggest decliners on the broader market were Heineken (-26.0 sen), Selangor Properties (-25.0 sen), Ajinomoto (-25.0 sen) and APM Automotive (-20.0 sen). Meanwhile, ARank tumbled 13.0 sen after reporting a weak set of quarterly results.

• Anchoring the gainers list on the broader market were petrochemical refineries and consumer products giants like Heng Yuan (+52.0 sen), Dutch Lady (+36.0 sen), Petron Malaysia (+32.0 sen) and Nestle (+28.0 sen). Hartalega added 16.0 sen to record its fourth straight winning streak. Meanwhile, Hong Leong Bank (+36.0 sen), Sime Darby Plantation (+9.0 sen) Genting Malaysia (+4.0 sen), Hong Leong Financial Group (+4.0 sen) and IHH (+4.0 sen) topped the big board advancers list.

• Asia benchmark indices extended their gains yesterday as the Nikkei added 0.6% to close marginally below the 23,000 psychological level. The Hang Seng (+1.1%) advanced for the third consecutive day, while the Shanghai Composite (+1.0%) powered above the 3,300 psychological level, underpinned by gains in consumer and financial shares. ASEAN stockmarkets, meanwhile, ended mostly higher.
• Wall Street edged higher overnight as investors shrugged off an explosion at midtown Manhattan that is caused by a potential terrorist attack with the Dow gaining 0.2%. On the broader market, the S&P 500 (+0.3%) closed at a fresh record high level, buoyed by gains in technology shares, while the Nasdaq climbed 0.5%.
• European stockmarkets ended mostly lower as the CAC and DAX fell 0.2% each after reversing earlier gains, dragged down by the appreciation of the Euro currency against the Greenback. The FTSE, however, gained 0.8% as investors remain positive on the Brexit breakthrough deal.

The Day Ahead

• The upsides gave way to profit taking activities yesterday as investors were quick to close out their open positions amid the continuing lack of fresh catalysts to sustain an uptrend. Nevertheless, the key index remains close to the 1,720 level and the base building exercise is still in the process after the key index’s recent falls.

• Under the prevailing environment, we expect the market to continue on its base building process around the 1,720 level as it continues to firm up the base at around the above level for a potential window dressing run later in the month. Therefore, we continue to think the 1,725- 1,730 levels will remain the near term resistances, while there should be ample support around the 1,710 level.

• With market participation thinning ahead of the year-end, the lower liners and broader market shares are likely to stay mixed for longer.

Company Update

• Oldtown has received a pre-conditional cash offer for all the group’s issued ordinary shares at RM3.18 per share (about 10.4% premium over the closing price on 7th December 2017), by Jacobs Douwe Egberts Holdings Asia NL. B.V. – an indirect unit of Jacobs Douwe Egberts B.V. (JDE).
• The offer is subject to the fulfillment of the pre-conditions which include: i) JDE Asia’s filing being approved by the Competition Commission of Singapore to make the offer, and ii) conditional upon approvals from antitrust authorities.

• Currently, JDE does not hold any stake in Oldtown, and the offer will only be made if and when all pre-conditions are satisfied on or before 11th August 2018. Oldtown’s majority shareholders (representing 51.5% of the total issued shares) have already irrevocably agreed to undertake the offer.

• JDE is the world’s leading pure-play CPG coffee company and also the owner of notable brands like Jacobs, Tassimo, Senseo and Super. We noted that the group has been on a shopping spree, having acquired Singapore’s Super Group and U.S.-based Keurig Green Mountain in 2016 and 2015 respectively, in a bid to stamp its position as a global player.

• Oldtown is likely to be delisted from Bursa Malaysia and privatised by JDE, in the event of a successful takeover.

Comments

• At the offer price of RM3.18 per share in cash, Oldtown’s implied PER of 19.5x is above consumer peers’ PER of 14.0x- 17.0x and slightly above our target FY18 PER of 19.0x. The cash offer is also more than three-fold of the group’s net book value (NBV), which is fair in our view.
• Thus, in view of the challenging business environment on the local front, which is further exacerbated by the strengthening of the Ringgit in 2017, we think that the minority shareholders should accept the conditional offer as it represents an opportunity for the minority shareholders to realise their investment in Oldtown at an offer price that is above its fair value.
• Subsequently, we revise our call on Oldtown to a HOLD (from a Buy) with an unchanged target price of RM3.10, mainly due to the recent rally in Oldtown’s share price and pending further developments on the aforementioned corporate exercise. Our target price is derived from ascribing an unchanged target PER of 19.0x to its unchanged FY18 EPS of 16.5 sen.

Company Brief

• Pos Malaysia Bhd’s Group Chief Executive Officer (CEO), Datuk Mohd Shukrie Mohd Salleh has resigned, effective 31st December, 2017 after five years with the company to pursue a career change. He will be replaced by Datuk Azlan Shahrim, until a suitable candidate is appointed. (The Edge Daily)

• KPJ Healthcare Bhd's 60.0%-owned subsidiary, Selangor Specialist Hospital Sdn Bhd (SgSH) is selling a five-storey car park block located within the KPJ Selangor Specialist Hospital in Shah Alam, Selangor to Al-`Aqar Healthcare Real Estate Investment Trust (REIT) for RM13.0 mln.

• KPJ is a major unitholder of Al-‘Aqar, with indirect interest of 39.3% of Al- ‘Aqar units. The proposed acquisition is expected to be completed by end-2017. (The Star Online)

• LB Aluminium Bhd’s 2QFY18 net profit plunged 71.0% Y.o.Y to RM1.7 mln, from RM5.8 mln in the same quarter last year, on the back of higher raw material input costs and lower operating income. Revenue for the quarter, however, gained 7.0% Y.o.Y to RM126.9 mln, from RM118.3 mln last year.

• Cumulative 1HFY18 net profit also fell 52.0% Y.o.Y to RM5.3 mln, from RM10.9 mln a year ago, due to the aforementioned reasons, although revenue was 10.0% Y.o.Y higher at RM251.4 mln, from RM228.0 mln in 1HFY17. Moving forward, key growth drivers could include growth from its export market and possible product diversification. (The Star Online)

• Ivory Properties Group Bhd is once again seeking for a time extension in order to fulfill the conditions precedent for the proposed sale of a piece of freehold land in Jesselton, Penang, for RM150.0 mln — the third extension it has announced in relation to the disposal. The extension this time is for 12 months until 16th December 2018.

• To recap, the land (approximately 21.8 ha.) was acquired for RM53.0 mln in 2007 and approved by shareholders for disposal on 25th November 2015. Ivory was expected to gain approximately RM38.0 mln from the disposal to Jesselton Peak Sdn Bhd, which was initially targeted for completion in December 2016. (The Edge Daily)

• SWS Capital Bhd is planning a bonus issue of two new shares, together with five warrants, for every eight shares held. The proposed exercise will include the issuance of 36.5 mln new shares and 91.2 mln free detachable warrants, with five-year tenure at exercise price of 90.0 sen. Proceeds raised will be used for working capital. The proposal is slated to be completed within two months. (The Edge Daily)

• GETS Global Bhd (formerly known as KBES Bhd) is buying the entire 80.0% stake held by Putrajaya Leisures & Services Group Sdn Bhd (PULSE Group) in loss-making Pengangkutan Awam Putrajaya Travel & Tours Sdn Bhd (PAPTT) for RM1.00. Perbadanan Putrajaya owns the remaining 20.01% of PAPTT's shares. Following the deal, KBESM will assume liabilities worth RM5.0 mln from PAPTT.

• PAPTT is a public transport service provider in Putrajaya which is supported by over 170 buses. It also manages the Putrajaya Sentral Terminal, Putrajaya Park and Ride and car parks in various locations in Putrajaya.(The Edge Daily)

• Tan Sri Khoo Kay Peng will relinquish the role of CEO at MUI Properties Bhd to his son, Andrew Khoo Boo Yeow, effective 1st January 2018 as part of a succession plan.

• The former, who holds about 74.3% stake in MUI, however, will stay on as the company's Executive Chairman, which he has held since 1979. Meanwhile, Mr. Andrew has also been appointed as the company's Executive Director (ED). (The Edge Daily)

Source: Mplus Research - 12 Dec 2017