Consolidation Overdue

• The FBM KLCI (+0.1%) managed to eke out marginal gains after trading in a choppy manner last Friday. The key index consequently recorded its tenth straight weekly winning streak, rising 0.9% W.o.W. The lower liners, however, ended mostly lower as the FBM Small Cap and FBM Fledgling fell 0.4% and 0.3% respectively, while the broader market closed mixed.

• Market breadth remained negative as decliners outnumbered advancers on a ratio of 6-to-4 stocks. Traded volumes slipped 19.7% to 2.61 bln shares as investors continue to book in recent gains.

• More than two-third of the key index constituents advanced, led by Nestle (+RM2.60), followed by Petronas Dagangan (+86.0 sen), Hong Leong Financial Group (+44.0 sen), Petronas Gas (+38.0 sen) and Hong Leong Bank (+20.0 sen). Petroleum refineries like Heng Yuan (+72.0 sen) and Petron Malaysia (+30.0 sen) topped the broader market gainers list, while consumer product giants like Carlsberg (+30.0 sen), Dutch Lady (+20.0 sen), and Malayan Flour Mills (+14.0 sen) also advanced.

• Leading the decliners list on the broader market were technology stocks such as Malaysian Pacific Industries (-RM1.10), KESM Industries (-56.0 sen), Globetronics (-22.0 sen) and Vitrox (-21.0 sen), while Tasek Corporation sank 82.0 sen. Among the big board biggest decliners were Genting (-21.0 sen), Petronas Chemicals (-12.0 sen), Sime Darby (-10.0 sen), AmBank (-8.0 sen) and KLCC (-4.0 sen).

• Japanese equities retreated last Friday as the Nikkei (-0.9%) erased most of its previous session gains on weakness in banking stocks after the Bank of Japan conducted a special bond purchase operation to curb rising yields. The Shanghai Composite index (+0.4%) snapped its four-day losing streak after recouping all its intraday losses, but posted its worst weekly losses (-2.7% W.o.W) since December 2016, while the Hang Seng (-0.1%) ended marginally lower. ASEAN stockmarkets, meanwhile, ended mostly lower last Friday.
• U.S. stockmarkets suffered its worst day in two years as the Dow sank 2.5% to close below the 26,000 psychological level last Friday, dragged down by the worsening bond rout after the 10-year treasury yield topped 2.8%. On the broader market, the S&P 500 slumped 2.1% to close below the 2,800 psychological level with all eleven major sectors in the red, while the Nasdaq closed 2.0% lower.
• Earlier, European benchmark indices – the FTSE (-0.6%), CAC (-1.6%) and DAX (1.7%), all closed in the red. The weakness was partly attributable to the slump in Wall Street coupled with a string of disappointing earnings from corporate giants such as Deutsche Bank AG (-6.2%), Caixabank SA (-3.0%) and BT Group Plc (- 2.2%).

THE DAY AHEAD

• The key index has continued to defy expectation for a long overdue consolidation and remained overbought last week on selective buying. However, Wall Street’s overdue consolidation last Friday may now also provide the excuse for the FBM KLCI to undergo a meaningful pullback for the gains over the past two months to be digested.

• We think a meaningful consolidation could lead the FBM KLCI back to the 1,820-1,850 levels, which would allow the key index to take a breather after the strong recent gains and to build up a base for another run later. The current runup has been propped-up by selective buying and without a broad-based buying support, the uptrend will be difficult to be sustained.
• Meanwhie, the insipid condition on the lower liners and broader market shares looks to persist amid the lack of new leads and fresh buying and we also expect market breadth to stay indifferent for now.

COMPANY BRIEF

• Tan Sri Quek Leng Chan has resigned as Chairman of Hong Leong Capital Bhd with immediate effect, replaced by Tan Kong Khoon who is currently Chief Executive Officer and President of Hong Leong Financial Group Bhd (HLFG). (The Star Online)

• Malaysia Airports Holdings Bhd is disposing of its entire 11.0% stake in GMR Hyderabad International Airport Ltd (GHIAL) to India’s GMR Airports for US$76.1 mln (RM295.3 mln) cash.

• The proposed disposal is part of MAHB group’s portfolio rebalancing strategy and the proceeds are intended for general corporate purposes and expenses in relation to the proposed disposal. GMR Airports is the major shareholder in GHIAL with a 63.0% stake while Airports Authority of India and State of Telangana each own 13.0%. (The Star Online)

• T7 Global Bhd will be investing about RM200.0 mln in its metal treatment plant in Serendah over the next three to five years. The plant, located in the UMW High Value Manufacturing Park and set to cater for the aerospace industry, is expected to be completed by the end of 2018.

• The plant is undertaken by T7 Kilgour Sdn Bhd, a 60:40 joint venture (JV) company between the group's aerospace arm T7 Aero Sdn Bhd and KOV Ltd, a whollyowned unit of UK-based Kilgour Metal Treatments Ltd. The RM200.0 mln investment, to be funded internally by the JV company, covers all land development and training for the new personnel. (The Edge Daily)
• Genting Bhd will be opening the US$1.20 bln Resorts World Catskills on 8th February 2018 at the site of the old Concord Resort Hotel in Catskills, upstate New York, expanding its foothold in the US.
• The resort comprises a 100,000 sq.f casino with more than 150 game tablets and 2,150 slot machines. It will include a 332-room hotel and 2,500- seat theatre, with plans for an 18 hole golf course and a water park. (The Edge Daily)

• SCH Group Bhd is entering the event equipment supply business segment to diversify its earnings base and enhance its top and bottom lines. The group has signed an agreement with Hextar Holdings Sdn Bhd to acquire the entire equity interest in TK Tent & AirConditioning Rental Sdn Bhd for RM50.0 mln.

• The acquisiiton help diversify SCH's income stream which is currently mainly derived from the quarry equipment business and is dependent on the cyclical nature of the construction industry. With the acquisition, the group’s operations can be expanded to achieve certain economies of scale, in terms of pooling of resources to increase overall operating efficiencies and productivity levels. (The Edge Daily)

Source: Mplus Research - 5 Feb 2018