Quick Rebound In Store

• After recorded three successive losing streaks, the FBM KLCI (+0.6%) advanced on the solid inflation data coupled with buying support in selective banking heavyweights. The lower liners – the FBM Small Cap (+0.2%), FBM Fledgling (+0.3%) and FBM ACE (+1.8%), all rebounded, while the broader market ended mostly positive, anchored by gains in the technology sector (+1.8%).

• Market breadth turned positive as gainers outnumbered decliners on a ratio of 490- to-396 stocks, while 415 counters flatlined. Traded volumes, however, fell 20.3% to 2.53 bln shares as investors remain opt to wait for further leads.

• Half of the key index constituents advanced, led by banking heavyweights like Hong Leong Financial Group (+24.0 sen), followed by CIMB (+23.0 sen) and Public Bank (+22.0 sen), while Nestle and Genting Malaysia added 18.0 sen and 12.0 sen respectively. Petronas Chemicals (+4.0 sen) and Press Metal (+3.0 sen). Glove manufacturers like Hartalega (+68.0 sen), Top Glove (+57.0 sen and Kossan (+16.0 sen) continue to dominate the broader market advancers list, while Malaysian Pacific Industries and Heng Yuan climbed 48.0 sen and 42.0 sen respectively.

• In contrast, notable decliners on the broader market include BAT (-RM1.00), United Plantations (-40.0 sen), Batu Kawan (-38.0 sen), Far East Holdings (- 22.0 sen) and Chemical Company of Malaysia (-18.0 sen). Key losers on the big board Hong Leong Bank (-14.0 sen), DIGI (-7.0 sen), MISC (-5.0 sen), Tenaga (- 4.0 sen) and RHB Bank (-4.0 sen).

• Japanese stockmarkets rebounded yesterday as the Nikkei gained 0.1%, lifted by financial stocks. The Hang Seng Index slipped 0.1% after erasing its intraday gains, while the Shanghai Composite fell 0.3% as banking liquidity tightens. ASEAN stockmarkets, meanwhile, closed mixed.
• U.S. stockmarkets extended their losses overnight as the Dow edged 0.1% lower after the Republican tax overhaul passed its final vote. On the broader market, the S&P 500 declined 0.02%, dragged down by weakness in consumer and real estate shares, while the Nasdaq slipped 0.04%.
• Earlier, European benchmark indices - the FTSE (-0.3%), CAC (-0.6%) and DAX (- 1.1%), all closed in the red as investors booked profits ahead of the year end festive breaks. Meanwhile, the International Monetary Fund downgraded its forecast for U.K. growth in 2017 to 1.6% from 1.7% and expects growth to slow to 1.5% in 2018.

The Day Ahead

• The tide changed quickly on the local bourse yesterday, back by the solid Malaysia’s inflation data. Consequently, market players took a positive view to bargain hunt on some beaten down stocks, while institutional investors resume their window dressing activities that led to the FBM KLCI’s strong gains yesterday.

• We expect near term recovery on Bursa Malaysia on the back of the improved market sentiments. However, we think the upsides will become choppier as we think some quick profit taking activities could emerge after yesterday’s hefty gains. On the upside, the next resistance is at the 1,760 and 1,770 levels. In the meantime, the immediate support is located at the 1,730 level.

• With renewed buying interest on the local indices, we expect rotational plays to resume. Any gains, however, would be insignificant as investors will be quick to lock in near term profits ahead of the year end festive breaks.

Macro Brief

• Malaysia's inflation, a measured by the consumer price index (CPI), rose 3.4% Y.o.Y in November 2017, mainly due to higher transport and food costs – but the rate was in line with a economists’ forecast.
• For the period between January and November 2017, the CPI rose 3.9% Y.o.Y. In monthly terms, November 2017 CPI increased 0.7% M.o.M from October 2017. (The Star Online)

Company Update

• Comfort Gloves Bhd (CGB) posted a 43.6% Y.o.Y jump in its 3QFY18 net profit to RM11.9 mln, from RM8.3 mln previously, in-tandem with stronger revenue contribution (+43.9% Y.o.Y) at RM106.5 mln, from RM74.0 mln in the previous corresponding year.

• Cumulative 9MFY18 net profit, meanwhile, also surged 75.9% Y.o.Y to RM31.1 mln vs. RM17.7 mln a year ago, boosted by ongoing capacity expansion and cost savings strategies. Revenue was also 65.5% Y.o.Y higher at RM314.8 mln, compared to RM190.2 mln in 9MFY17.

Comments

• The cumulative results came in within our expectations, accounting to about 76.1% of our forecast FY18 net profit of RM40.9 mln, while revenue accounted for 80.3% of our full year revenue at RM392.2 mln. Consequently, we maintain our BUY recommendation on CGB with a target price of RM1.30 (unchanged) by ascribing a PER of 17.0x to its unchanged FY19 EPS of 7.7 sen. The ascribed target PER remain at a discount to the PER of industry bellwethers like Hartalega Holdings Bhd and Top Glove Corporation Bhd due to its smaller market capitalisation and capacity.
• At the target price of RM1.30, CGB will trade at an implied PER of 14.1x on FY19 earnings, which is below the industry average of about 24.0x. However, we believe the lower valuation is fair in view of the group’s smaller capacity and market capitalisation.
• We maintain our bullish view on Comfort’s long-term growth prospects, underpinned by continuous capacity expansion and improvements initiatives. We think that the rubber gloves sector will continue to benefit from reduced supply of vinyl gloves from China, as well as the resilient demand for rubber gloves worldwide, although upside could be pressured by rising raw materials and natural gas prices.

Company Brief

• Berjaya Land Bhd (BLand) slipped into the red, with a 2QFY18 net loss of RM99.9 mln, from a net profit of RM180.5 mln in 2QFY17, mainly due to a provision for impairment of balance of sales proceeds from the sale of Berjaya (China) Great Mall Co Ltd (GMOC), which amounted to RM155.1 mln. The weaker performance was also due to lower profit margins earned on new car sales by its 98.4%-owned H.R. Owen Plc. Quarterly revenue, meanwhile fell marginally to RM1.61 bln from RM1.62 bln previously. (The Edge Daily)

• Poh Huat Resources Holdings Bhd’s 4QFY17 net profit fell 6.4% Y.o.Y to RM17.8 mln, from RM19.1 mln a year ago, on lower contribution from its Vietnamese operations, although revenue gained 12.9% Y.o.Y to RM171.7 mln, from RM152.1 mln in 4QFY16. The group has also proposed a final dividend of 3.0 sen per share, bringing total dividends paid and proposed by Poh Huat for FY17 to 8.0 sen per share. (The Edge Daily)

• Salcon Bhd has made provision of RM3.0 mln in its 2017 books to account for a potential loss, should its appeal to overturn a court judgement favouring its contractor be unsuccessful.

• The group had received a judgement from the High Court in Sabah and Sarawak on 19th December, 2017 ordering Salcon to pay contractor Terra Environment Management Sdn Bhd RM2.4 mln, with costs and an interest of 5.0% per annum from 1st January, 2014 to the date of full payment.

• To recap, the litigation is in relation to legal claims put forward by Terra Environment in November 2015, alleging Salcon Engineering Bhd (SEB) had underpaid for completed works for the Higher Power Water Jetting Cleaning and CCTV Inspection and nondig repair works in various sewer pipes in Kota Kinabalu, Sabah. (The Edge Daily)

• Westports Holdings Bhd has been slapped with several bills of demand totalling RM59.5 mln from the Royal Malaysian Customs between 17th July and 29th September this year. The demand included, inter alia, time-barred assessments for the years 2008 to 2011, import duty remittance for purchases of equipment and the Goods and Services Tax for purchases made after April 2015," it added. (The Edge Daily)
• Dagang NeXchange Bhd (DNeX) has secured another year of extension to its contract for the National Single Window (NSW) for Trade Facilitation from the government. Consequently, the contract period will be extended until 31st August, 2019. DNeX has been the operator of the Royal Malaysian Customs Department's NSW for Trade Facilitation since its launch in 2009.
• Under the contract extension, the service charge to be imposed by the group will remain unchanged at 75.0 sen and 80.0 sen per kilobyte (kb) for the government and private sector respectively, and RM5.0 per approved permit and Certificate of Origin application. (The Edge Daily)

• Goh Ban Huat Bhd (GBH) has proposed to buy several properties in Pontian, Johor, from three companies controlled by the family of its largest shareholders, for RM143.0 mln, as it seeks to diversify its business into construction and property development.

• The properties involved are 29 units of unsold 1.5-storey semi-detached factories — with a collective built-up area of 340,542 sq ft — 15 parcels of vacant industrial land, a vacant commercial plot, and vacant land for a hostel that measure 45.52 acres (18.4ha) in all. Subsequently, GBH will sign three conditional sale and purchase agreements (SPA) with Pekan Nenas Industries Sdn Bhd (PNISB), Pekan Nenas Development Sdn Bhd (PNDSB) and Jayaplus Development Sdn Bhd (JDSB), for the proposed acquisitions.

• GBH Chairman Datuk Tan Eng Boon holds a 52.5% stake in PNISB, 78.7% in PNDSB, and 66.7% in JDSB. Mr. Eng Boon is the father of GBH Managing Director (MD) Datuk Seri Edwin Tan and executive director Datuk Seri Godwin Tan, who both control a 70.4% indirect stake in GBH. Edwin also holds between 8.3% and 20.3% in the three vendor companies, while Godwin has an 8.3% stake in JDSB. (The Edge Daily)

• The takeover offer for Hovid Bhd has turned unconditional, with joint offerors Fajar Astoria Sdn Bhd and Hovid MD David Ho Sue San now holding in aggregate 68.2% of the Hovid’s shares, turning the bid unconditional, following the fulfilment of the 67.0% acceptance threshold fixed earlier. The jointofferors will keep the offer open for acceptances for at least another 14 days from the unconditional date until 5pm on 12th January, 2018. (The Edge Daily)

• Green Ocean Corp Bhd’s Datuk Tan See Meng has tendered his resignation as the group’s MD, due to personal commitments. Datuk Tan, who will be replaced by executive director Mohd Yusri Md Yusof was the group’s MD since 2013 and also the founder and MD of Sawit Raya Sdn Bhd, an entity established since 1983 that is involved in palm oil trading and refinery activities. (The Edge Daily)

• Yee Lee Corp Bhd and Tasco Bhd have entered into a shareholders’ agreement to jointly-develop a business involving trading, distribution and logistics through YLTC Sdn Bhd. Tasco plans to subscribe for 999,998 shares in YLTC, the joint-venture (JV) company that is currently wholly-owned by Yee Lee Trading Co Sdn Bhd (YLT), which in turn is wholly-owned by Yee Lee, for RM999,998.

• Upon completion of the subscription of the shares in YLTC, Tasco will hold 40.0% of the shareholding in YLTC, while the remainder is held by Tasco. (The Edge Daily)

Source: Mplus Research - 21 Dec 2017