Window Dressing Overdone, Pullback Beckons

• The FBM KLCI (+1.2%) advanced for the third straight session as the key index closed at its highest level since midOctober 2017, supported by foreign fund buying support in most of the index heavyweights. The lower liners – the FBM Small Cap (+0.7%), FBM Fledgling (+0.1%) and FBM ACE (+0.2%), all trended higher, while the REITS sector (-0.1%) underperformed the positive broader market.

• Market breadth stayed positive as gainers outnumbered losers on a ratio of 631-to- 328 stocks, while 382 counters flat-lined. Traded volumes, however, fell 3.3% to 2.43 bln shares as investments were centered towards blue chip stocks.

• Banking heavyweights like Hong Leong Bank (+50.0 sen), Public Bank (+44.0 sen), Hong Leong Financial Group (+36.0 sen) and Maybank (+24.0 sen) continues to dominate the gainers on the key index, while BAT jumped RM1.88. Technology giants like KESM Industries (+58.0 sen) and Malaysian Pacific Industries (+40.0 sen) topped the broader market winners list, while United Plantations (+40.0 sen), Petron Malaysia (+26.0 sen) and Apollo Food (+24.0 sen) advanced.

• Amongst the biggest losers on the broader market were Carlsberg (-20.0 sen), Far East Holdings (-18.0 sen), Dutch Lady (-10.0 sen) and Scientex (-8.0 sen). O&C Resources slipped 1.0 sen despite reporting a strong set of quarterly earnings. Meanwhile, Sime Darby Plantations (-11.0 sen) and DIGI (-5.0 sen) were the only two decliners on the FBM KLCI.

• Asia benchmark indices retreated as the Nikkei (-0.3%) slipped for third straight session. The Shanghai Composite fell 0.3% after the China’s central bank unexpectedly raised its benchmark interest rates, mirroring the move by the U.S. Federal Reserve, while the Hang Seng Index fell 0.2%. ASEAN stockmarkets, meanwhile, closed mixed.
• Despite opening higher at the start of the trading bell, U.S. stockmarkets succumbs to quick profit taking overnight as the Dow fell 0.3% as concerns over the tax overhaul that may struggle to pass the Senate. On the broader market, the S&P 500 slipped 0.4%, while the Nasdaq closed 0.3% lower.
• Earlier, European benchmark indices - the FTSE (-0.7%), CAC (-0.8%) and DAX (- 0.4%), all extended their losses after the European Central Bank kept its benchmark interest rates unchanged. Notable decliners were banking stocks like Société Générale SA (-1.2%), Deutsche Bank AG (- 0.9%) and BBVA (- 0.8%).

The Day Ahead

• The window dressing activities have certainly lit-up the market of late with its near 40-point gain over the past three sessions. However, given the speed of the gains, we now think is overdone and we expect a consolidation spell ahead of the weekend. The weaker performance in overseas markets overnight will also provide a reason for market players to lock-in some of their profits from the strong gains over the past three days.

• The consolidation may take the key index back to the 1,750 level, which we think will hold over the near term given that it is a target for the key index for the market to end the year at. Below the above level, there is further support at the 1,728 level. Meanwhile, the resistances are at 1,765 and 1,776 levels.

• We also see profit taking activities on the lower liners and broader market shares ahead of the weekend as retail players move to secure their profits before the market turn quieter ahead of the Christmas and New Year breaks.

Company Update

• OldTown Bhd has signed a master licence agreement with Cambodia-based Biniton Food & Beverage Co Ltd and its Chairman Bun Khang, granting the latter the exclusive right to operate the café chain business under the brand name of ‘Oldtown White Coffee’ in Cambodia. The term of the agreement is for five years, from 14th December 2017, with an option to renew for two consecutive terms of five years each.

• Biniton is a private limited company in the Kingdom of Cambodia, which is principally involved in the retail sale of food, beverages and tobacco in specialised stores. Biniton is scheduled to open its first ‘Oldtown White Coffee’ outlet by 2Q2018. Comments

• Oldtown’s expansion in Cambodia is inline with its long-term development plans, which includes café-chain expansion in the overseas market. We think that Oldtown is making steady progress to improve its export-revenue, in view of the challenging prospects back home. Going forward, we anticipate more similar agreements to be inked as Oldtown expand its F&B segment regionally, which will contribute to the group’s earnings growth and strengthen its position as a leading household brand for white coffee.

• As there is no immediate effect to Oldtown’s earnings, we maintain our HOLD recommendation on Oldtown, with unchanged target price of RM3.10. Our target price is derived from ascribing a target PER of 17.0x to our unchanged FY18 EPS of 16.0 sen, to reflect the higher valuations in consumer bellwethers like Nestle and Dutch Lady. The recommendation is also pending the completion of its corporate exercise where the company is expected to be taken private next year.
• V.S. Industry Bhd’s (VSI) saw its 1QFY18 net profit surged 37.3% Y.o.Y to RM46.0 mln against RM33.5 mln in the same quarter last year, lifted by stronger revenue contribution, especially from its Malaysian operations and a net forex gain of RM2.5 mln. Meanwhile, quarterly revenue surpassed the RM1.0 bln threshold for the first time, coming in at RM1.09 bln, from RM680.0 mln previously. The group has also declared an interim dividend of 1.5 sen per share, payable on 12th March 2018. Comments
• The reported net profit was lowerthan-anticipated, accounting to only 16.6% of our FY18 estimated net profit of RM276.5 mln, although the reported revenue was within our forecast, accounting to about 23.9% of estimated full year revenue of RM4.54 bln. The variation was mainly due to significantly weaker-than-expected performance from its China unit, on higher raw material prices and increased consumption of raw materials used in pre-production testing for new products.

• Consequently, we trim our FY18 earnings and revenue forecast slightly by 2.1% and 0.4% to RM226.1 mln and RM4.53 bln respectively, on the back of lower contribution from VS International Group (VSIG), VSI’s Hong Kong-listed unit and lower margins. Meanwhile, FY19 earnings and revenue is also trimmed to RM302.2 mln (-5.0%) and RM5.36 bln (-18.2%) respectively.
• Even so, we maintain our BUY recommendation on VSI, but with a lower target price of RM3.60 (from RM3.80) by ascribing an unchanged PER of 18.0x (from 15.5x) to its revised FY19 diluted EPS of 20.0 sen. The ascribed target PER is at a small premium to its closest competitor SKP Resources, which we believe is justified in view of the group’s leading position in Malaysia’s EMS industry.
• The premium is also accorded for its wide array of supply chain services and established earnings track-record, as well as the potentially strong forward earnings growth on offer.

Company Brief

• Eco World Development Group Bhd (EcoWorld) shares and its structured warrants will be suspended from trading on 15th December, 2017, pending a material announcement by Eco World International Bhd (EWI). The announcement is related to the Heads of Agreement (HoA) between EWI and UK construction firm Willmott Dixon on 8th November 2017, to jointly develop 12 sites in Greater London and the south-east of England.

• EWI is planning to acquire a 70.0% equity interest in 11 project sites, which collectively has a capacity of 6,700 residential units, with a potential gross development value of at least £2.5 bln (RM13.86 bln) — over 5.5x the developer’s market capitalisation of RM2.5 bln. (The Edge Daily)
• Tiger Synergy Bhd has clinched a RM1.0 bln contract from Elite Community Sdn Bhd,to develop affordable homes in Seremban, compriising 5,000 apartment units on a 123-ac. leasehold land. The construction will also comprise 15 blocks of 21-storey apartments, with three different built-up areas. (The Edge Daily)
• AmanahRaya Real Estate Investment Trust (REIT) is planning to sell a piece of freehold land in Shah Alam to Nippon Express (M) Sdn Bhd for RM105.0 mln. The disposal proceeds will be used to partly settle existing loads from Affin Bank Bhd, while the remainder will be used for working capital or to part finance the group’s future potential acquisition. (The Edge Daily)

• Xin Hwa Holdings Bhd has secured a contract worth up to RM16.8 mln to deliver precast viaduct and other related products for the Bandar UtamaKlang LRT line (LRT3). The 24-month contract was awarded by Reaplite Industry Sdn Bhd and will commence at the end of December 2017. Following the latest contract, Xin Hwa's total contract sum secured from September to-date is at an estimated RM52.0 mln. (The Edge Daily)

• Bioalpha Holdings Bhd is sanguine that its export revenue is on track to expand at a double-digit growth rate as the group intends to leverage off existing export opportunities in China to reach neighbouring countries.

• The group foresees Xinjiang as a hub to penetrate neighbouring countries with Muslim population such as Mongolia, India, Kazakhstan and Pakistan. To recap, the group has identified a niche opportunity to supply Halal-certified health supplements to the Muslimpopulated provinces in Xinjiang, Qinghai, Shaanxi and Gansu. It had also recently launched a series of new health supplement products in China during 2H2017. (The Star Online)
• Country View Bhd is selling 139 pieces of land in Kulim, Kedah for a combined RM120.0 mln, in order to pay for a proposed land acquisition in Pulai, Johor Baru. The lands entail a 792,251 sq. m. piece of land at Pekan Sungai Karangan and 138 plots with an aggregate net land area of 944,103 sq. m. at Padang Meha, located in Kulim. The lands are located along the East– West Highway, opposite Taman MBI Desaku in Padang Meha, about 20 km north-east of the Kulim town centre.
• The disposal price is more than four times that of Country View's original cost of investment in the lands of RM29.0 mln and is expected to reap a gain on disposal worth RM74.7 mln. (The Star Online)

• Hovid Bhd’s Managing Director (MD) David Ho and Fajar Astoria Sdn Bhd have once again decrease the acceptance condition threshold for their takeover offer for the second time, to 67.0% (from 75.0%), although the closing date remains on the 29th December, 2017 and all other terms and conditions remain unchanged.

• This came after their combined shareholding stood at only 62.3% as of 14th December, 2017.

• The directors have also extended their closing date three times, from 20th November 2017 originally, to 4th December and subsequently 7th December and then to 29th December 2017. (The Star Online)

• NTPM Holdings Bhd's 2QFY18 net profit fell 60.3% Y.o.Y to RM6.4 mln, from RM16.0 mln a year ago, due to higher operating costs incurred, despite a 3.1% Y.o.Y growth in revenue at RM169.3 mln, from RM164.2 mln in 2QFY17.

• For the cumulative 1HFY18, net profit was 27.3% Y.o.Y lower at RM18.5 mln, from RM25.4 mln last year, while revenue increased 9.4% Y.o.Y to RM345.4 mln, from RM315.6 mln in 1HFY17. (The Edge Daily)

Source: Mplus Research - 15 Dec 2017