Consolidating The Gains

• The FBM KLCI (+0.5%) rallied, closing above the 1840.0 psychological mark, spurred by gains in banking heavyweights after Bank Negara Malaysia raised its interest rate for the first time since 2014. All the lower liners remained in the red, however, although most of the broader market closed higher, with the exception of the Consumer Products, Technology and Mining sector.

• Market breadth stayed dampened as losers beat the gainers on a ratio of 515- to-468 stocks, while traded volumes continued to thin, losing 12.0% to 2.96 bln amid the lack of fresh trading catalysts.

• Notable banking heavyweights like Hong Leong Financial Group (+28.0 sen), Public Bank (+24.0 sen) and Hong Leong Bank (+14.0 sen) led the Main Board gainers, followed by Nestle (+RM1.00) and Petronas Gas (+10.0 sen). Broader market frontrunners, meanwhile, include Fraser & Neave (+26.0 sen), George Kent (+23.0 sen), BAT (+18.0 sen), Hartalega (+18.0 sen) and Carlsberg (+12.0 sen).

• Top Glove (-35.0 sen) fell on mild profittaking activities, followed by Zhulian (- 28.0 sen), Vitrox (-25.0 sen), KESM Industries (-20.0 sen) and Tasek (-18.0 sen), which weighed on the broader market. Underperformers on the Bursa Malaysia include Genting (-7.0 sen), Sime Plantations (-3.0 sen), Genting Malaysia (-2.0 sen), PPB (-2.0 sen) and Telekom Malaysia (-1.0 sen).

• Key regional benchmark indices retreated on Thursday, following the extended weakness in the Greenback. The Nikkei lost 1.1%, dragged down by losses in Sony (-3.6%). Meanwhile, the Hang Seng Index (-0.9%) snapped six-straight sessions of gains to close lower amid losses in Chinese stocks listed in Hong Kong. At the same time, the Shanghai Composite also fell 0.3%, while ASEAN stockmarkets finished mostly lower.
• U.S. equities ended mostly higher, as investors digested fresh corporate earnings releases. The Dow logged gains of 0.5%, on the back of higher-thanexpected quarterly results from Caterpillar and 3M. The S&P 500 rose 0.1%, although the Nasdaq declined slightly by 0.1%.
• The majority of European equities slid, following the strength in Euro which would weigh on exporters. The FTSE (- 0.4%) continued to fall on losses in Sage Group (-2.3%) and BAT (-2.1%). Meanwhile, the DAX and the CAC also declined by 0.9% and 0.3% respectively.

THE DAY AHEAD

• Despite the mixed market environment, the key index sprang higher yesterday with banking stocks taking the lead following the interest rate hike that will be beneficial to the banking sector. This has allowed the key index to spur past the 1,840 level with the next resistance at 1,850 within sight.

• However, we think the above resistance will be more formidable to clear as the broad base buying is still elusive, judging by the thinning traded volumes of late. Therefore, we expect the key index to mark time and could possibly linger within the 1,840 and 1,850 levels over the near term as the recent gains are digested. There could also be some mild profit taking early in the day, but we think bargain hunting activities will help to shore up the market.

• Among the lower liners and broader market shares, interest appears to be thinning as fresh buying is also elusive, thereby limiting the upside options. This trend is likely to continue ahead of the weekend as more retail players move to the sidelines.

MACRO BRIEF

• Bank Negara Malaysia has raised key interest rate by 25 basis points in its Monetary Policy Committee (MPC) yesterday, which was in line with economists’ expectations.
• This will raise the overnight policy rate (OPR), which is the benchmark for the commercial lending and deposit rates, to 3.25%. The move will also see banks raise the lending and savings rates subsequently. (The Star Online)

COMPANY UPDATE

• V.S. Industry Bhd has proposed a bonus issue of up to 397.6 mln new shares on the basis of one bonus share-for-four existing VSI shares. The bonus issue is expected to be completed in the 2Q2018, while the entitlement date will be fixed a later date. (The Edge Daily) Comments

• Assuming a full exercise of the warrants and all outstanding ESOS options, VSI’s share base will increase by 26% to 1,987.9 mln shares (from 1,305.4 mln, excluding treasury shares). Based on our back-of-the envelope calculation, exbonus issue share price is expected to be adjusted by 26% to RM2.38 (based on yesterday’s closing price).

• Consequently, we also adjust our exbonus target price to RM2.85 (previously RM3.60) after imputing the full conversion of its outstanding warrants and ESOS in FY18 and FY19 EPS by about 21%. Thus, we maintain our BUY recommendation on VSI by ascribing an unchanged target PER of 18.0x to its adjusted FY18 EPS of 15.9 sen.
• We view the proposed bonus issue as positive as a means to reward its shareholders. We also continue to like VSI for its strong growth outlook, which will be driven by higher sales orders from a key client, as well as from its gradual capacity expansion. COMPANY BRIEFS
• Brahim’s Holdings Bhd has entered into an agreement with Keretapi Tanah Melayu Bhd (KTMB) to provide on-board food and beverages catering services on all electric train services (ETS) operated by KTMB. Its subsidiary Brahim’s SATS Food Services Sdn Bhd (BSFS) has signed a catering services agreement with KTMB for the provision of total food and beverage solutions.

• The agreement is effective 1st May 2017 and will continue for a fixed initial term of five years until 30th April 2022 with an option to extend or renew for another five years. Brahim’s, however, did not disclose the value of the deal. (The Star Online)

• Syarikat Takaful Malaysia Bhd 4Q2017 net profit grew 43.4% Y.o.Y to RM56.3 mln on improved net wakalah fee income and lower management expenses. Revenue for the quarter climbed 5.5% Y.o.Y to RM517.7 mln.

• For 2017, cumulative net profit gained 17.3% Y.o.Y to RM206.7 mln. Revenue for the year added 6.3% Y.o.Y to RM2.14 bln. (The Edge Daily)

• Pavilion Real Estate Investment Trust’s (Pavilion REIT) 4Q2017 net property income (NPI) rose 15.7% Y.o.Y to RM89.1 mln on higher rental income. Revenue for the quarter improved 10.2% Y.o.Y to RM129.5 mln.
• For 2017, the cumulative NPI climbed 2.6% Y.o.Y to RM322.9 mln. Revenue for the year increased 6.6% Y.o.Y to RM459.7 mln. A final distribution per unit of 4.3 sen was declared. (The Edge Daily)
• Guocoland (M) Bhd’s 2QFY18 net profit sank to RM965,000, from RM110.8 mln in the previous corresponding quarter as the previous corresponding period including one-off higher share of profits from an associate following a land sale of RM116.0 mln. Revenue for the quarter, however, surged 253.4% Y.o.Y to RM108.6 mln.

• For 1HFY18, cumulative net profit tumbled 98.2% Y.o.Y to RM2.0 mln. Revenue for the period, however, soared 255.9% Y.o.Y to RM253.2 mln. (The Edge Daily)

• Aeon Co (M) Bhd (Aeon Malaysia) and honestbee inked a Memorandum of Understanding to establish a business alliance to tap consumers' demand for home grocery delivery service. The retailer has reported that the alliance with honestbee, an online concierge and delivery specialist, will allow both parties to develop new services that match rapidly-changing customer demand. (The Edge Daily)

Source: Mplus Research - 26 Jan 2018