Due For A Consodilation

• The FBM KLCI (+0.9%) posted a new multi-year high, last seen in September 2014 – led by banking heavyweights amid optimisms of the positive growth outlook for the banking industry. All of the lower liners, however, slipped into the red as the FBM Ace (-1.3%) took the brunt of the losses. However, the broader market closed higher, with the exception of the Properties, Construction, Technology and Plantations sub-sectors.

• Market breadth was tepid as losers beat winners on a ratio of 623-to-370 stocks. Traded volumes, however, gained slightly by 5.9% to 3.0 bln shares on selling pressure on the lower liners.

• Major banks like Public Bank (+60.0 sen), Hong Leong Bank (+46.0 sen), Hong Leong Financial Group (+46.0 sen), as well as Maybank (+12.0 sen) notched gains on Monday, followed by Nestle, which closed RM1.60 higher. Meanwhile, broader market gainers included consumer products-related stocks like Dutch Lady (+32.0 sen), Ajinomoto (+30.0 sen) as well as Fraser & Neave (+28.0 sen), followed by Spring Gallery Bhd (+30.0 sen) and Bursa Malaysia (+28.0 sen).

• On the downside, refineries like Hengyuan Refining (-88.0 sen) and Petron Malaysia Refining (-32.0 sen) declined, alongside Panasonic Manufacturing (-90.0 sen), BAT (-22.0 sen) and See Hup Consolidated (-20.0 sen. The only key-index losers were IOI Corporation (-4.0 sen), Petronas Dagangan (-4.0 sen) and Ambank (-2.0 sen).

• Key regional indices slipped into the negative territory, on the back of mild profit-taking activities and a firmer U.S. Dollar. The Nikkei flatlined after giving back earlier gains. Meanwhile, the Shanghai Composite index and The Hang Seng lost 1.0% and 0.6% respectively as investors booked profits following the strong rally previously. ASEAN stockmarkets closed mixed yesterday.
• U.S. stocksmarkets retreated amid concerns of higher interest rates in the near-team. The Dow lost 0.7%, weighed down Apple (-2.1%) following a report of slower iPhone production. The S&P 500 (- 0.7%) and the Nasdaq (-0.5%) also sank into the red ahead of the employment data scheduled to be released later this week.
• European stockmarkets finished broadly lower, weighed down by weakness in the banking sector and higher European bond yields. The FTSE (+0.1%) bucked the general downtrend, however, spurred by the rally in miners, as well as a weaker Pound. The DAX and CAC closed in the red with 0.1% losses each.

THE DAY AHEAD

• After three consecutive sessions of gains following the interest rate hike, the key index is already overbought and we maintain our view that a consolidation is due for the gains to be digested. We have also noted that the gains are selective – concentrated on banking stocks as they are the beneficiaries of the rate hike, while the broader market condition is on the lull side where market breadth is decidedly negative.

• We think the weakness in overseas markets overnight could prompt the anticipated profit taking after the FBM KLCI surged nearly 3.0% over the past week, which we think is overdone. Therefore, a pullback could lead the key index back to the 1,850-1,860 levels for now and we deem a pullback as healthy to allow the market to take a breather and to build up a firmer base around the 1,820-1,850 levels before springing higher to test the next resistance level at 1,880 points.
• The lower liners and broader market shares will also continue to see lull conditions amid the lack of fresh leads and the corresponding tepid market interest following the market’s surge over the past month. At the same time, follow through buying interest is also low amid the toppish valuations and fewer available catalysts.

COMPANY BRIEF

• Weida Management Sdn Bhd, a major shareholder of Weida (M) Bhd, intends to privatise the company and delist it from the Main Market of Bursa Malaysia via a selective capital reduction (SCR) and repayment exercise. Weida Management and persons acting in concert hold about 33.3% of the issued share capital in the company and are offering a cash repayment of RM2.40 for each Weida share to entitled shareholders, amounting to RM203.2 mln for 84.7 mln shares.

• However, a proposed bonus issue will be undertaken to increase the share capital to a sufficient level for the capital reduction given that Weida's issued share capital comprises only 133.33 mln shares worth RM66.7 mln. Weida Management intention to delist the company is owing to the listing's minimal value-add and relevance to the company, the lack of analyst coverage, investor interest and low liquidity.

• The proposed SCR is an opportunity for shareholders to exist and realise their investment in Weida at a premium ranging from 19.9% to 23.6% based on the five-day to one-year volume weighted average price. Weida was suspended for trading on 29th January 2018 pending the announcement and will resume trading on 30th January 2018. (The Star Online)
• SMTrack Bhd is eyeing a turnaround in its financial performance after it inked a joint venture with VFTech Sdn Bhd. Under the agreement, SMTrack and VFTech will form a 51:49 joint venture that will see both companies cooperating to introduce a fuel tracking system for offshore oil vessels, based on artificial intelligence technology. (The Star Online)
• Chin Teck Plantations Bhd's 1QFY18 net profit dropped 13.6% Y.o.Y to RM13.6 mln, dragged down by foreign exchange losses and higher expenses. Revenue for the quarter, however, rose marginally by 0.1% Y.o.Y to RM42.5 mln. (The Edge Daily)

• HLT Global Bhd is acquiring a 55.0% stake in glove maker HL Rubber Industries Sdn Bhd from vendors Suntel International Co Ltd, AXG Capital Sdn Bhd and Lee Sow Yin for RM33.0 mln. The deal — to be satisfied via 113.8 mln new HLT shares at 29 sen apiece, comes with a RM10.0 mln profit after tax guarantee for 2018 and 2019 combined, together with net assets of RM38.8 mln. (The Edge Daily)

• Inari Amerton Bhd is proposing a onefor-two bonus issue that will see Inari capitalise up to RM112.1 mln from its share premium account to reward shareholders, with up to 1.12 bln new shares to be issued by the company. (The Edge Daily)

• Malaysian Pacific Industries Bhd's (MPI) 2QFY18 net profit slipped 25.1% Y.o.Y to RM41.2 mln, due to lower overseas revenue and higher material costs. Revenue for the quarter fell 1.5% Y.o.Y to RM395.3 mln.

• For 1HFY18, cumulative net profit declined 18.2% Y.o.Y to RM77.4 ml. Revenue for the period, however, increased 3.1% Y.o.Y to RM782.9 mln. (The Edge Daily)

• Emas Offshore Ltd (EOL) is disputing claims by Perisai Petroleum Teknologi Bhd that EOL has defaulted, according to notices received by Perisai on 29th January 2018.

• The claim was used by Perisai to enforce its decision to terminate a shareholders' agreement between the two parties and to initiate an option to instruct EOL to sell its remaining 49.0% stake in Emas Victoria for US$1.00 — which was also disputed by EOL in the notices. (The Edge Daily)

• Prestariang Bhd has received a contract extension from the Ministry of Finance to supply Microsoft software licences to all government agencies and a training centre called Institut Latihan Awam, for an estimated RM222.6 mln over a three-year period. This third extension, which it termed as Master Licensing Agreement 3.0, is effective from 1st February 2018 to 31st January 2021. (The Edge Daily)

• TMC Life Sciences Bhd, which is on a same-sector acquisition mode to grow its revenue, has reported that there could be more than one deal to be sealed in 2018. The company is also confident of its capability to fund potential acquisitions through numerous means available, including leveraging on its new major shareholder Rowsley Ltd. (The Edge Daily)

Source: Mplus Research - 30 Jan 2018