Slow Ascend

• The FBM KLCI closed marginally lower after lingering mostly in the negative territory, weighed down by profit-taking some of the blue chip counters like Petronas Gas. The FBM ACE took the worst hit as all the lower liners retreated amid a mostly negative broader market.

• Market breadth took a turn for the worst as decliners overtook the advancers on a ratio of 606-to-402 stocks. Traded volumes also lost 14.9% to 3.36 bln shares amid selling pressure in the lower liners.

• Underperformers include Petronas Gas (- 46.0 sen), Hong Leong Financial Group (- 30.0 sen), Genting (-16.0 sen), Ambank (- 5.0 sen) and Axiata (-3.0 sen) as they weigh on the blue-chip gauge. Hartalega (-40.0 sen) declined on mild profit-taking, followed by Hengyuan Refining (-28.0 sen), Panasonic Manufacturing (-22.0 sen), Lafarge Malaysia (-20.0 sen), Tasek (-16.0 sen) and DRB-Hicom (-15.0 sen).

• Broader market constituents which bucked the general downtrend include BAT (+38.0 sen), Sungei Bagan Rubber (+21.0 sen), United Plantations (+20.0 sen), Kluang Rubber (+18.0 sen) and Allianz Malaysia (+16.0 sen). Meanwhile, key-index winners were Nestle (+40.0 sen), Kuala Lumpur Kepong (+14.0 sen), Genting Malaysia (+11.0 sen), CIMB (+5.0 sen) and Sime Darby Plantation (+3.0 sen).

• Major regional benchmark indices closed mostly higher as the Greenback continued its descent. The Nikkei (-0.8%), however, pulled back after setting a fresh 26-year high, weighed down by exporters. On the other hand, the Hang Seng Index (+0.1%) pared earlier losses and finished in the green for the sixth time, boosted by gains in energy stocks, while the Shanghai Composite added 0.4%. Meanwhile, the majority of the ASEAN stockmarkets rallied yesterday.
• Wall Street was mixed-to-lower yesterday on Wednesday, spooked by President Donald Trump’s latest bout of protectionist measures. The Dow, however, snagged another fresh record high after rebounding from earlier losses. Meanwhile, losses in tech-stocks weighed on the S&P 500 (-0.1%) and Nasdaq (- 0.6%) amid concerns of rich valuations.
• U.K. stocks also narrowed overnight on concerns that the acceleration of the Pound will weighed on the prospects of export-oriented companies. The FTSE trimmed 1.1%, its lowest close since lateDecember last year. Meanwhile, the DAX (-1.1%) and the CAC (-0.7%) was also yanked lower on the back of potentially tighter monetary policy by the European Central Bank amid a stronger Euro and higher inflation.

THE DAY AHEAD

• It would seem that the market is finding it difficult to get going as the follow through buying remains indifferent, leaving the environment to quick profit taking activities yesterday. This is also leaving the market on an indifferent mode that is also making it difficult to climb the beyond 1,840 level.

• Nevertheless, we believe the market is merely marking time as the market’s undertone is still largely on the firm side and further upsides are in the offing. Therefore, we think there will still be substantive rotational plays that will be punctuated by quick profit taking moves amid a slower market ascend. Hence, we think the FBM KLCI will continue to move gradually to the 1,840-1,850 resistances in due course.

• The lower liners and broader market shares are also enduring a choppy ride amid the ongoing rotation plays. We see the trend persisting over the near term as firm follow through buying strength is still tentative.

MACRO BRIEF

• Malaysia's inflation rate rose 3.5% Y.o.Y to 120.9 in December 2017, coming in line with expectations on higher transport costs as fuel prices increased due to the jump in crude oil prices. As a result, the transport index rose 11.5% Y.o.Y, followed by the food & non-alcoholic beverages index (+4.1% Y.o.Y).

• On a monthly basis, the CPI increased 0.1% M.o.M in December 2017. The latest data brought full-year 2017 inflation to 3.7% Y.o.Y, near the top end of Bank Negara Malaysia’s 3.0%-4.0% forecast range. (The Star Online)

COMPANY UPDATE

• Econpile Holdings Bhd has bagged a RM119.1 mln contract from Bayu Mantap Sdn Bhd to undertake substructure and basement works for the redevelopment of Tenaga Nasional Bhd's quarters.

• The contract entails work on a planned mixed development with two tower blocks, comprising a 45-storey corporate tower with a seven-storey multi-level carpark and a 57-storey tower containing serviced residences and a hotel, as well as a two-storey commercial development with a four-storey basement carpark. The overall duration of the contract is estimated to be 22 months. (The Edge Daily)

Comments

• With the incorporation of the latest award, Econpile have secured five contracts totalling RM441.9 mln in FY18 –representing 73.7% of our orderbook replenishment rate of RM600.0 mln for FY18. The group's current order book now stands at RM1.40 bln, which will provide earnings visibility over the next three years.

• With the contract falling within our targeted orderbook replenishment rate, we leave our earnings forecast unchanged. We also maintain our HOLD recommendation with an unchanged target price of RM1.25 by ascribing a unchanged target PER of 17.0x to its FY18 EPS of 7.2 sen.

COMPANY BRIEFS

• Ireka Corporation Bhd, CRRC Group's unit and STO Express Co Ltd are teaming up to look into expanding the logistics business area in Malaysia and Southeast Asia. The move would enable Ireka to look into investment and development of logistics warehouses, distribution centres and other ancillary real estate facilities.

• Ireka, CRRC Urban Traffic Co Ltd (CRRC UT) and STO Express had signed a MoU on 24th January 2018 to set up their working relationship to leverage on each other's technical knowledge, expertise and experience for expansion and growth. CRRC UT is a member of the China based CRRC Group and is the world’s largest manufacturer of rolling stock, rail and transportation related products and systems. (The Star Online)

• PA Resources Bhd has secured a RM600.0 mln contract from US-based First Solar Inc and its manufacturing units in Malaysia and Vietnam to supply certain materials and other goods for the production of solar photovoltaric modules. PA Resources entered into a supply agreement for a period of three years. (The Star Online)
• Boustead Plantations Bhd is selling part of its oil palm estate in Penang for RM136.0 mln cash with the proceeds used for repayment of loans taken for acquisition of new plantation land. Boustead Plantations had entered into two separate sale and purchase agreements (SPAs) with two private companies for the disposal of three parcels of land totaling 138.9 ha. in Seberang Perai Utara.
• Boustead Plantation will realise an estimated profit of about RM115.9 mln upon completion of the proposed sales. The group will continue to own and operate its plantation business on the remaining 562.3 ha. of Malakoff Estate. (The Star Online)

• Fraser & Neave Holdings Bhd (F&N) said that the stronger Ringgit is a boon for the food and beverage company given its position as a net importer. This is especially so for its dairy products segment as F&N obtains its raw materials from outside Malaysia compared with the soft drinks segment, as there are local sugar suppliers in the country. (The Edge Daily)

• Hock Seng Lee Bhd (HSL), which suffered from margin squeeze in 2017, is confident of improving its profit margin to double digits in 2018. The confidence hinges on expectation that its three mega projects in Sarawak would progress smoothly. In 2017, the delays in Phase 2 of the Kuching centralised wastewater management system project, as well as Package 7 of the Pan Borneo Highway, sapped HSL’s net profit margin to around 9.0% in the 2Q2017 and 3Q2017. (The Edge Daily)

• KLCCP Stapled Group's 4Q2017 net profit fell marginally by 0.5% Y.o.Y to RM345.5 mln, despite stronger performance in its hotel segment. Revenue for the quarter, however, rose 2.1% Y.o.Y to RM352.1 mln.

• For 2017, cumulative net profit declined marginally by 0.9% Y.o.Y to RM877.9 mln. Revenue for the year, however, improved 1.7% Y.o.Y to RM1.37 bln. The group distributed 97.0% of its distributable income with a distribution per stapled security of 36.15 sen per unit, representing an increase of 1.4% compared to 2016. (The Edge Daily)

• Gadang Holdings Bhd’s 2QFY18 net profit grew 1.7% Y.o.Y to RM28.4 mln, thanks to lower cost of sales. Revenue for the quarter, however, declined 2.9% Y.o.Y to RM142.9 mln.

• For 1HFY18, cumulative net profit climbed 4.7% Y.o.Y to RM46.7 mln. Revenue for the period gained 3.4% Y.o.Y to RM259.6 mln. (The Edge Daily)

• Handal Resources Bhd is acquiring a 51.0% stake in a pipeline engineering firm for RM5.1 mln, which is in line with the group's plan to expand its business in the oil and gas industry. The proposed deal gives it the opportunity to work with Simflexi Sdn Bhd, which has a patented technology of crude oil storage in reducing O&G industry operating and capital cost. The proposed acquisition comes with a profit guarantee for three years of not less than RM2.5 mln for 2018, not less than RM3.5 mln for 2019 and not less than RM5.8 mln for 2020. (The Edge Daily)

• Hua Yang Bhd’s 3QFY18 net loss stood at RM957,000 vs. a net profit of RM10.4 mln in the previous corresponding quarter on lower sales. Revenue for the quarter slipped 31.3% Y.o.Y to RM50.8 mln.
• For 9MFY18, cumulative net profit sank 97.4% Y.o.Y to RM1.3 mln. Revenue for the period fell 52.8% Y.o.Y to RM144.0 mln. (The Edge Daily)
• Zhulian Corp Bhd's 4QFY17’s net profit declined 43.9% Y.o.Y to RM11.5 mln, dragged down by higher operational cost and foreign exchange losses amounting to RM9.9 mln. Revenue for the quarter, however, grew 13.7% Y.o.Y to RM59.0 mln.

• For FY17, cumulative net profit added 27.0% Y.o.Y to RM52.8 mln. Revenue for the period gained 7.5% Y.o.Y to RM205.7 mln. A fourth interim dividend of 1.5 sen and another special dividend of 1.5 sen per share, both payable on 9th March 2018, was declared. (The Edge Daily)

• Salcon Bhd’s 60.0%-owned unit, Envitech Sdn Bhd has secured an RM7.1 mln contract from Jurutera Perunding Tegap Sdn Bhd for works related to the construction and upgrading of sewage infrastructure in Banting, Selangor. The works comprise the design, construction and completion of a sewage pumping station and pumping main, as well as the upgrading of an existing pumping station and treatment plant. The contract is for a 12-month period commencing 30th January 2018. (The Edge Daily)

Source: Mplus Research - 25 Jan 2018