A Quick Rebound Expected

• The FBM KLCI ended in the red after lingering mostly in the negative territory, weighed down by selling-pressure in selected blue-chip stocks. The majority of the lower liners extended their gains, with the exception of the FBM Ace (-0.2%), while the broader market closed mostly lower.

• Market breadth was negative as losers slightly outweighed the winners on a ratio of 453-to-442. Traded volumes, however, inched higher by 2.7% to 2.34 bln shares, lifted by buying-interest in AirAsia-related companies.

• Significant heavyweights that weighed on the Main Board include Nestle (-50.0 sen), Hong Leong Bank (-42.0 sen), KLCC (-14.0 sen), MISC (-12.0 sen) and Hong Leong Financial Group (-8.0 sen). United Plantations (-40.0 sen), Malaysia Airports (-13.0 sen), Harrisons (-12.0 sen), Hartalega (-12.0 sen) and Hong Leong Industries (-12.0 sen), meanwhile, dragged the broader market lower.

• On the winners’ list, consumer products giant Dutch Lady (RM1.40) rallied, alongside Ajinomoto (+50.0 sen), Heineken Malaysia (+30.0 sen), PMB Technology (+27.0 sen) and Hengyuan Refining (+26.0 sen) as they outperformed its broader market peers. Petronas-linked companies like Petronas Dagangan (+8.0 sen) and Petronas Gas (+6.0 sen) also extended their rally on Thursday, followed by Public Bank (+14.0 sen), Kuala Lumpur Kepong (+8.0 sen) and RHB Bank (+6.0 sen).

• Major Asian bourses weakened on Thursday, dampened by the overnight weakness on Wall Street amid the rising Treasury bond yields. The Shanghai Composite index, however, bucked the general negative sentiment and closed higher – led by gains in consumer staples and materials-related stocks after the Lunar New Year holidays. Meanwhile, the Nikkei and the Hang Seng declined 1.1% and 1.5% respectively. Most ASEAN stockmarkets also closed on a downward bias.
• Wall Street closed mostly higher on the back of favourable employment data, although concerns of higher interest rates weighed on sentiments. The Dow gained 0.7%, but was slightly offset by losses in financials and healthcarerelated stocks. The S&P 500 (+0.1%) also ended higher at 2,704.0 points, but the Nasdaq continued to spiral downwards for the fourth day in a row, weighed down by tech giants like Netflix and Alphabet.
• Earlier, European equities slipped into the red on the increasing likelihood of higher U.S. interest rates this year. The FTSE (- 0.4%) took a beating, following lowerthan-expected U.K. GDP data. Meanwhile, the DAX (-0.1%) extended its losses for the second-straight day, despite trimming some earlier losses. The CAC (+0.1%), however, outperformed its peers, inching higher to 5,309.2 points on gains in the eleventh hour.

THE DAY AHEAD

• We see a quick recovery from yesterday’s weakness after global stockmarkets perked up overnight that could help the key index end the week on a bright note. The positivity from overseas equity markets will also be imperative for stocks on Bursa Malaysia to post a stronger recovery from the rout at the start of the month.

• Once again, the 1,860 and 1,870 levels will serve as the immediate resistances which we think the former could be attempted amid the more positive market undertone. Meanwhile, the supports remain at the 1,850 and 1,820 levels.

• The buying strength is also returning in earnest among the lower liners and broader market shares after their steep retreat a month ago and this will help to further their recovery prospects. However, the buying strength is still tentative amid the few available leads, albeit the ongoing results reporting season could provide the catalysts on selected stocks. COMPANY UPDATE

• AWC Bhd posted a 3.0% Y.o.Y decline in its 2QFY18 net profit at RM5.1 mln, in comparison to RM5.2 mln in the same quarter last year, mainly due to project delays which resulted in slower progress billings. Revenue for the quarter was also lower by 9.6% Y.o.Y to RM68.4 mln, from RM75.6 mln a year earlier.

• Cumulative 1HFY18 net profit, meanwhile, fell 5.0% Y.o.Y to RM10.1 mln vs. RM10.7 mln last year, in-tandem with the decrease in revenue (-5.7% Y.o.Y) to RM134.6 mln, from RM142.8 mln in 1HFY17 due to the aforementioned reasons.

• The latest results came in below our expectations, accounting to only 43.3% and 41.0% of our FY18 forecast net profit of RM23.4 mln and revenue of RM324.6 mln respectively. Project delays from the last quarter continued to weigh on AWC’s performance, resulting in the variation above. However, we remain confident that the company is capable of getting back on track in the upcoming quarters. Comments

• Despite lower-than-anticipated reported earnings, we tweaked our FY18 net profit slightly higher (to account for lower estimated non-controlling interests), but leave our revenue estimates unchanged at RM23.8 mln and RM324.6 mln respectively, as we expect better results in 2HFY18. We also adjusted our FY19 (-10.7%) forecast net profit and revenue (-8.8%) downwards to RM19.7 mln and RM282.7 mln respectively, after penciling-in lower estimated tenderbook orders.
• Consequently, we maintain our BUY recommendation on AWC, but with a lower target price of RM0.95 (from RM1.20) after rolling over our valuations to FY19's EPS of 7.3 sen. The target price is also derived from ascribing a lower target PER of 13.0x (from 14.0x), which is in-line with the lower overall valuations of the FBM Small Cap index and is at a discount to AWC’s nearest competitor, UEM Edgenta Bhd, due to the former’s smaller market capitalisation.

COMPANY BRIEF

• Gas Malaysia Bhd has entered into a pipeline development agreement with the Perak state government to provide gas infrastructure for the supply of natural gas to its customers in Kinta Valley worth RM180.0 mln.

• The Perak State Government has agreed to contribute towards the development cost in the form of capital contribution of RM10.0 mln which is fixed and not subject to any variation. Under the JV, Gas Malaysia will develop, operate and own natural gas distribution system pipeline from the take-off point located at Ayer Tawar, Perak to supply natural gas to the areas identified by the parties. (The Star Online)

• Sime Darby Plantation Bhd’s 2QFY18 net profit added 34.5% Y.o.Y to RM477.0 mln on higher contribution from upstream Malaysia operations and reduced finance costs from lower borrowing. Revenue for the quarter rose 4.1% Y.o.Y to RM4.09 bln.

• For 1HFY18, cumulative net profit jumped 208.5% Y.o.Y to RM1.45 bln. Revenue for the period added 13.1% Y.o.Y to RM7.63 bln. An interim dividend of 3.5 sen a share, payable on 4th May 2018 was declared. (The Star Online)

• Public Bank Bhd’s 4Q2017 net profit rose marginally by 0.2% Y.o.Y to RM1.49 bln, underpinned by steady loan growth coupled with continuous drive on fee-based revenue and effective cost management. Revenue for the quarter increased 5.2% Y.o.Y to RM5.35 bln.

• For 2017, cumulative net profit grew 5.2% Y.o.Y to RM5.47 bln. Revenue for the year gained 3.8% Y.o.Y to RM20.86 bln. A final dividend of 34 sen a share was proposed. (The Star Online)

• Scientex Bhd has reported that trading in its shares will be suspended from 9.00am-5.00pm on 23rd February 2018 pending the release of a material announcement. (The Edge Daily)

• Muhibbah Engineering (M) Bhd's 49.0%- owned Muhibbah Engineering Middle East LLC has bagged a construction project worth about RM149.0 mln from the Economic Zones Company, Qatar (MANATEQ), a company owned by the government of Qatar. The contract is for the design, construction and erection of syncrolift and travel lift with ancillaries and all associated works in Marsa Um Alhoul. The construction works will commence immediately and is expected to be completed by 1Q2019. (The Edge Daily)

• Malaysia Smelting Corp Bhd (MSC) swung into a net loss of RM13.4 mln in 4Q2017 vs. a net profit of RM2.4 mln in the previous corresponding quarter, dragged down lower sales volume in the tin smelting segment, lower profit from sale of by-products, higher production cost and operating expenses. Revenue for the quarter declined 9.0% Y.o.Y to RM318.5 mln.

• For 2017, cumulative net profit sank 53.6% Y.o.Y to RM15.9 mln. Revenue for the year contracted 2.7% Y.o.Y to RM1.44 bln. A final dividend of 4.0 sen per share was declared. (The Edge Daily)

• Axiata Group Bhd‘s 4Q2017 net profit stood at RM24.7 mln vs. net loss of RM309.5 mln recorded in the previous corresponding quarter due to better operating profit coupled with foreign exchange gains. Revenue for the quarter climbed 8.2% Y.o.Y to RM6.26 bln.

• For 2017, cumulative net profit expanded 80.4% Y.o.Y to RM909.5 mln. Revenue for the year rose 13.2% Y.o.Y to RM24.4 bln. A final dividend of 3.5 sen was declared. (The Edge Daily)

• MBM Resources Bhd’s 4Q2017 net loss stood at RM191.7 mln vs. a net profit of RM7.6 mln a year ago, affected by impairment charges. Revenue for the quarter, however, rose marginally by 1.5% Y.o.Y to RM443.8 mln.

• For 2017, cumulative net loss stood at RM148.8 mln vs. a net profit of RM66.1 mln recorded in the previous year. Revenue for the year, however, increased 3.7% Y.o.Y to RM1.73 bln. A second interim dividend of 1.5 sen per share was declared. (The Edge Daily)

• Vivocom International Holdings Bhd is proposing a two-for-three rights issue to raise up to RM75.3 mln. The cash call will include free detachable warrants on the basis of one warrant E for every two rights shares subscribed.
• From the RM75.3 mln to be raised from the exercise, RM49.1 mln will be used for working capital, while RM25.0 mln will be for its future viable investments, which include mergers and acquisitions of businesses or investments. (The Edge Daily)
• Kian Joo Can Factory Bhd’s 4Q2017 net profit rose 77.6% Y.o.Y to RM46.9 mln, lifted by increasing demand for the group's products and upward adjustments of selling price to absorb the increase in the cost of direct material. Revenue for the quarter rose 15.2% Y.o.Y to RM494.4.

• For 2017, cumulative net profit dropped 30.1% Y.o.Y to RM90.0 mln. Revenue for the year, however, grew 7.1% Y.o.Y to RM1.84 bln. (The Edge Daily)

• Apex Healthcare Bhd’s 4Q2017 net profit jumped 89.4% Y.o.Y to RM12.8 mln, aided by higher sales and a greater proportion of high margin products in the associates’ revenue mix. Revenue for the quarter rose 5.9% Y.o.Y to RM152.6 mln.

• For 2017, cumulative net profit climbed 27.2% Y.o.Y to RM44.5 mln. Revenue for the quarter increased 6.7% Y.o.Y to RM620.3 mln. A final single-tier dividend of 6.5 sen per share, payable on 14th June 2018 was declared. (The Edge Daily)

Source: Mplus Research - 23 Feb 2018