Consolidation May Set In

• The FBM KLCI (+0.5%) rallied, closing above the 1850.0 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 sectors.

• Market breadth was still negative with 562 decliners against 380 advancers. Traded volumes, on the other hand, gained 8.0% to 3.19 bln on the back of buying-interest in Airasia and O&Grelated companies.

• Heavyweights advancers were Nestle (+RM4.00), Petronas Gas (+50.0 sen), Hong Leong Financial Group (+20.0 sen), PPB Group (+14.0 sen) and Public Bank (+10.0 sen). Broader market winners, meanwhile, include BAT (+86.0 sen), Fraser & Neave (+42.0 sen), Hartalega (+24.0 sen), JHM Consolidated (+18.0 sen) and Amway (+14.0 sen).

• On the downside, Panasonic Manufacturing (-60.0 sen), Petron Refining (-50.0 sen), Hengyuan Refining (-32.0 sen), Tasek (-26.0 sen) and Kluang Rubber (-17.0 sen) retreated. Meanwhile, Petronas Dagangan (-6.0 sen) lagged on the blue chips gauge, followed by IHH Healthcare, Petronas Chemicals and Tenaga Nasional, all of which closed 2.0 sen lower. Astro also fell marginally by 1.0 sen on Friday.

• Key regional benchmark indices retreated on Friday, 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.
• Wall Street surged to fresh record highs, as investors shrugged off soft economic data amid upbeat corporate earnings and expectations of pro-business policies under President Donald Trump’s presidential term. The Dow (+0.9%) advanced on the back of gains in Intel (+10.6%) and Pfizer (+4.8%). On the broader market, the S&P 500 (+1.2%) rallied, driven mainly by gains in the healthcare and technology stocks, while the Nasdaq ended 1.3% higher.
• U.K. equities advanced, despite the strengthening Pound – led by gains in AstraZeneca after the drugmaker released positive trial results for its cancer treatment as well as better-thanexpected U.K. GDP data. The FTSE gained 0.7% to finish at 7,665.5 points, alongside the DAX (+0.3%). Meanwhile, luxury goods-related stocks also pushed the CAC (+0.9%) to close in green on Friday.

THE DAY AHEAD

• Once again, selected index heavyweights were chased up, particularly at the end of the trading day last Friday, to allow the key index to post decent gains and to breach the 1,850 level. Despite the gains last Friday, we see the gains as superficial as the market interest was not broad-based and we think profit taking is in the offing for the gains to be digested, especially among banking stocks that posted strong gains over the past two sessions.

• We see the key index consolidating its gains over the near-term, potentially building up a base around the 1,845- 1,850 levels as there is still an absence of significant broad-based market interest. As it is, retail players are still staying tentative after the recent market surge, resulting in many to adopt a wait-and-see attitude until there are fresh catalysts.
• Consequently, we expect the broader market and lower liner stocks to remain subdued for longer amid the continuing lack of new leads.

COMPANY UPDATE

• Kimlun Corporation Bhd is acquiring 47 vacant detached lots and 30 doublestorey detached houses in Shah Alam from Melati Ehsan Holdings Bhd for RM68.4 mln. The properties were issued with 99-year leasehold titles expiring on 27th January 2103, while the net book value of the lots and houses were RM22.4 mln and RM43.4 mln, respectively as at 30th November 2017. The proposed acquisition is expected to be completed not later than the end of 1Q2020. Comments

• We are neutral on the abovementioned acquisition. The acquisition enables the group to raise its landbank in a strategic location in order to enhance its future revenue and earnings. Based on a total land area of 81,854 sq.m., the purchase price translates to RM77.64 psf and is fair in our view, given that land and properties in the surround area fetches prices around RM70-RM120 psf.

• We make no changes to our earnings forecast for now until Kimlun plans to develop the aforementioned 47 vacant detached lots. We reiterate our HOLD recommendation on Kimlun with an unchanged target price of RM2.40.

• Our target price is derived from ascribing an unchanged target PER of 11.0x to its 2018 construction earnings and PER of 6.0x (unchanged) to its manufacturing earnings, while its property development segment’s valuation remains unchanged at 0.6x its BV due to its relatively small-scale development projects

COMPANY BRIEFS

• After having resolved past issues that prevented a deal between the vendors of Ecolite Biotech Manufacturing Sdn Bhd and Sunzen Biotech Bhd, the latter has now re-entered into a share sale agreement with Ecolite. Following this resolution, Sunzen will now proceed and acquire 5.3 mln shares or 70% of Ecolite, for an unchanged purchase consideration of RM12.1 mln from its vendors, Chum Mun Cuan and Lim Poh Chuw. This amount was unchanged from the prior announcement on 7th July 2017.
• Ecolite is a health and wellness company that is primarily involved in the manufacturing and trading of traditional Chinese medicines and herbal health foods and beverages. Sunzen plans to leverage on its acquisition of the Ecolite Group with its biotechnology expertise to grow Ecolite’s traditional Chinese medicines, herbal health foods and beverages businesses. In addition, the company said it will also gain a foothold in exporting bird’s nests into mainland China. (The Star Online)

• GFM Services Bhd has entered into a share sale agreement with Kumpulan Parabena Sdn Bhd to acquire a 100.0% stake in concession holder, KP Mukah Development Sdn Bhd (KP Mukah) for RM130.0 mln. KP Mukah holds a concession, awarded by the Malaysian government and Universiti Teknologi Mara, which entails the design, build and construction of UiTM Mukah campus in Sarawak and the delivery of facilities management services. The concession period is for 23 years from September 2012 until September 2035.
• The acquisition will boost GFM orderbook to about RM1.50 bln, generating a new stream of stable cash flow that ensures long-term earnings visibility. The acquisition will be funded by a combination of internal funds, equity financing and borrowings. (The Star Online)
• Tenaga Nasional Bhd’s (TNB) 1QFY18 net profit rose 23.6% Y.o.Y to RM2.16 bln, boosted by the stronger Ringgit that translated into a foreign exchange gain of RM294.0 mln. Revenue for the quarter grew 3.3% Y.o.Y to RM11.61 bln. (The Star Online)

• Spring Gallery Bhd will develop a theme park in Klebang, Malacca, after winning the rights for the project from Village Roadshow Theme Parks Pty Ltd, the theme park’s operator. The theme park, will be built on nine pieces of land collectively measuring 292,795 sq.m. (The Edge Daily)

• AirAsia Bhd has carried 10.4 mln passengers in 3Q2017, 16.9% higher than the 8.9 mln passengers in the same period last year, while load factor rose to 88.0% from 87.0%. For the whole year of 2017, AirAsia carried a record 39.1 mln, 11.3% more than the 35.1 mln passengers in 2016. (The Edge Daily)

• Meanwhile, its sister company AirAsia X Bhd carried 1.5 mln passengers in 4Q2017, which was 12.3% more than the 1.2 mln passengers carried in the same period of 2016. For 2017 as a whole, total passengers carried climbed 24.5% Y.o.Y to 5.8 mln passengers from 4.69 mln in 2016. Load factor rose 3.0% Y.o.Y to 82.0%. (The Edge Daily)

• Cypark Resources Bhd won a contract worth RM260.5 mln for works related to a large-scale solar photovoltaic plant in Negeri Sembilan. It accepted a conditional letter of award from Cove Suria Sdn Bhd for the 30MW plant situated in Empangan Kelinchi.

• The contract period for the engineering, procurement, construction and commissioning of the plant is 24 months, while for the operation and maintenance of the plant it is 21 years, with effect from the commercial operation date confirmed by Tenaga Nasional Bhd. (The Edge Daily)

• Dagang NeXchange Bhd (DNeX) has acquired a substantial stake in two consulting and accounting system services companies as it aims to expand and strengthen its information technology and e-services business segment.

• It entered into a conditional agreement with Nuraslina Zainal Abidin to acquire a 51.0% stake in Genaxis Sdn Bhd for RM10.0 mln. This acquisition gives DNeX a 60.0% direct stake in Innovation Associates Consulting Sdn Bhd (IAC). (The Edge Daily)

• Pesona Metro Holdings Bhd won a RM161.9 mln contract from Sime Darby Property (Subang) Sdn Bhd to build serviced apartments in Subang Jaya, Selangor. The project consists of two blocks of 20-storey residential towers housing 361 units, one level of facilities, three levels of commercial units, nine levels of elevated carpark and one level of basement carpark. (The Edge Daily)

• LB Aluminium Bhd is set to venture into property development as it looks to increase its income. The diversification will allow the group to take advantage of attractive investment opportunities as and when they arise and help reduce its reliance on its manufacturing business, which is increasingly competitive and subject to volatility of its primary raw material. (The Edge Daily)

Source: Mplus Research - 29 Jan 2018