Recovery To Set In

• The FBM KLCI closed with minute losses, following a volatile session albeit slightly offset by extended gains in banking stocks. The majority of the lower liners also retreated with the exception of the FBM Fledgling (+0.6%). Meanwhile, the broader market was also pressured with three-of-ten subsectors in the red.

• Market breadth was lacklustre as decliners overtook advancers on a ratio of 513-to-479 stocks. Traded volumes followed suit, shedding 23.4% to 2.72 bln shares as investors digested the lackluster corporate financial updates.

• The top five decliners on the Main Board were Nestle (-RM1.00), Hong Leong Financial Group (-24.0 sen), Genting (- 18.0 sen), MISC (-14.0 sen) and Genting Malaysia (-12.0 sen). Meanwhile, BAT (- 70.0 sen), Pintaras Jaya (-39.0 sen), Malaysian Pacific Industries (-37.0 sen), Ajinomoto (-18.0 sen) and Hartalega (- 18.0 sen) also underperformed the broader market.

• Chart-toppers were Dutch Lady (+RM1.22), Kuchai Development (+42.0 sen), United Plantations (+34.0 sen), Apex Healthcare (+31.0 sen) and Far East Holdings (+30.0 sen). Meanwhile, banking bellwethers like Hong Leong Bank (+30.0 sen), Maybank (+14.0 sen) and Public Bank (+10.0 sen) cushioned the key index’s fall, followed by Petronas Dagangan (+16.0 sen) and Hap Seng Consolidated (+13.0 sen).

• On the regional front, major Asian stockmarkets advanced, taking cue from Friday’s positive close on Wall Street. The Nikkei climbed higher by 1.2% to close above the 22,153.0 psychological point despite a stronger Yen. The Shanghai Composite index also notched 1.2% gains, while the Hang Seng rose 0.7%, albeit slightly pressured by losses in property stocks. The majority of the ASEAN stockmarkets finished higher yesterday.
• Wall Street closed with solid gains ahead of the new Federal Chairman Jerome Powell’s first semi-annual economic testimony. The Dow leapt 1.6% - led by the rally in industrial blue chips like 3M (+3.0%). On the broader market, the S&P 500 and the Nasdaq also added 1.2% each, underpinned by gains in technology titans like Apple (+2.0%).
• Earlier, European equities ended higher, spurred by bullish sentiments in global stockmarkets. The FTSE (+0.6%) rallied on the back of gains in airlines like International Consolidated Airlines Group (+2.7%) and EasyJet (+2.0%). Meanwhile, the DAX (+0.4%) and the CAC (+0.5%) also closed on a positive note.

THE DAY AHEAD

• After yesterday’s mild pullback, we expect a quick recovery over the near term as the market takes cue from the positive undertone in global indices that is expected to extend to stocks on Bursa Malaysia. As it is, the general market undertone on the Malaysian equity market is still largely positive, but the lack of fresh catalyst could curtail fresh buying as the ongoing results reporting season have again provided a mixed earnings record.

• Therefore, we think the near term upsides could be modest as we see fresh buying remaining selective. On the upside, the key index could find the 1,870 level a difficult level to pass, while the FBM KLCI is now at its 1,860 support. If the support gives way, the next support is at the 1,850 level.

• The lower liners and broader market shares are also seeing a mixed following and we see this trend continuing as there are still few compelling buys after the market recovered some of steep losses from the start of the month.

COMPANY UPDATE

• Econpile Holdings Bhd’s 2QFY18 net profit added 6.4% Y.o.Y to RM22.7 mln on the back of higher recognition from its increased orderbook coupled with higher gain from disposal of machineries and rental income of equipment. Revenue for the quarter climbed 9.7% Y.o.Y to RM162.2 mln.
• For 1HFY18, cumulative net profit gained 16.2% Y.o.Y to RM43.9 mln. Revenue for the period improved 26.4% Y.o.Y to RM331.1 mln. The results were within expectations with its revenue amounting to 46.0% of our full-year forecast of RM719.6 mln, while its net profit came in at 45.5% of our estimate of RM96.5 mln. The slight variance was mainly due completion of certain projects whilst several projects are at the commencement stage.

Comments

• Backed by an unbilled construction orderbook of approximately RM1.27 bln from over 20 ongoing projects, Econpile’s orderbook-to-cover ratio at 2.2x against FY17 revenue of RM581.9 mln will continue to provide earnings visibility over the next 2-3 years.

• With the earnings coming within our expectations, we leave our earnings forecast unchanged. We also maintain our HOLD recommendation with a higher target price at RM1.30 (from RM1.25) after we rolled over our valuation metrics to FY19 by ascribing an unchanged target PER of 17.0x to its FY19 EPS of 7.6 sen, which is in line with its peers with similar market capitalisation.

• OCK Group Bhd’s 4Q2017 net profit slipped 36.9% Y.o.Y to RM7.0 mln, dragged down higher depreciation charges, higher finance cost and a foreign exchange loss of RM1.7 mln vs. a foreign exchange gain of RM3.8 mln recognised in the previous corresponding quarter. Revenue for the quarter, however, climbed 19.2% Y.o.Y to RM134.4 mln.

• For 2017, cumulative net profit fell 7.5% Y.o.Y to RM24.6 mln. Revenue for the year, however, expanded 20.9% Y.o.Y to RM485.4 mln. The reported earnings fell short of our expectations, accounting to 73.5% of our full year estimated net profit of RM33.4 mln. Likewise, the reported revenue amounted to 91.5% of our estimated revenue forecast of RM530.8 mln. Comments

• With the 4Q2017’s results coming below our expectations, we trimmed our earnings forecast by 12.7% and 15.5% to RM27.5 mln and RM34.8 mln for 2018 and 2019 respectively to reflect the higher depreciation charges. Nevertheless, we maintain our BUY recommendation on OCK, but with a lower target price of RM0.95 (from RM1.00).

• We adopt a sum-of-parts (SOP) approach as we valued its telecommunication network services and green energy & power solutions business segments on a discounted cash flow approach (key assumptions include a WACC of 9.0%, terminal growth rate of 1.5%) to reflect its ability to generate recurring revenues and steady earnings growth over the longer term. Meanwhile, we ascribe a 15.0x target PER to both its fully-diluted trading and mechanical & electrical engineering services businesses, based on their potential earnings contribution in 2018.

• Protasco Bhd has received an extension of concession from the Government of Malaysia for maintenance of Federal Roads in Peninsular Malaysia. Following the expiration of the Interim Period of two years on 16 February 2018, Protasco has entered into a Supplemental Interim Agreement with the Government for a further extension of the Interim Period for a further period of three months which shall expire on 16th May 2018. The Supplemental Interim Agreement shall automatically be terminated upon the signing of a new concession agreement with the Government.

Comments

• We made no changes to our earnings forecast as the short extension period will see minimal earnings contribution over the next three months. Should the group manage to secure a new concession agreement, however, we expect additional contribution of between 2%-3% to the group’s bottom line in 2018 and 2019 respectively. Hence, we maintain our BUY recommendation on Protasco with an unchanged target price of RM1.25.

• We arrive our target price on a sum-ofparts basis by ascribing an unchanged target PER of 11.0x to its 2018 construction earnings as well as a target PER of 8.0x (unchanged) to its 2018 concession and engineering services’ earnings. Its education and trading units valuations remain pegged at target PERs of 6.0x respectively due to their smaller scale businesses, while its property development division’s valuation is from ascribing an unchanged 0.6x to its BV.

COMPANY BRIEF

• Petronas Gas Bhd (PetGas) 4Q2017 net profit increased 4.6% Y.o.Y to RM486.7 mln, lifted by the group’s new LNG regasification terminal in Pengerang, Johor which commenced operations during the quarter. Revenue for the quarter improved 13.0% Y.o.Y to RM1.30 bln.

• For 2017, cumulative net profit rose 3.1% Y.o.Y to RM1.79 bln. Revenue for the year expanded 5.4% Y.o.Y to RM4.81 bln. A fourth interim dividend of 19.0 sen per share was declared. (The Star Online)

• Bumi Armada Bhd’s 4Q2017 net profit stood at RM63.8 mln compared with a net loss of RM1.37 bln in the previous corresponding quarter as there was a recognition of non-cash impairment charges for multipurpose construction vessels last year. Revenue for the quarter surged 523.4% Y.o.Y to RM662.1 mln.

• For 2017, cumulative net profit stood at RM352.2 mln vs. a net loss of RM1.96 bln recorded in the previous year. Revenue for the year jumped 82.3% Y.o.Y to RM2.40 bln. (The Star Online)

• Hong Leong Bank Bhd’s (HLB) 2QFY18 net profit increased 24.2% Y.o.Y to RM683.1 mln, backed by solid income growth, stable margins, cost control and recovery from associates' contributions. Revenue for the quarter grew 4.2% Y.o.Y to RM1.23 bln.

• For 1HFY18, cumulative net profit improved 21.0% Y.o.Y to RM1.32 bln. Revenue for the period added 5.8% Y.o.Y to RM2.41 bln. An interim dividend of 16.0 sen per share, payable on 28th March 2018 was declared. (The Star Online)? Hong Leong Financial Group‘s (HLFG) 2QFY18 net profit gained 11.8% Y.o.Y to RM495.3 mln on the back of improved contribution from Hong Leong Bank Bhd. Revenue for the quarter rose 1.5% Y.o.Y to RM1.37 bln.

• For 1HFY18, cumulative net profit climbed 14.6% Y.o.Y to RM950.6 mln. Revenue for the period grew 3.9% Y.o.Y to RM2.64 bln. (The Star Online)

• Alliance Bank’s 3QFY18 net profit fell 5.5% Y.o.Y to RM122.4 mln on lower investment income, higher expenses and taxes. Revenue for the quarter rose 2.4% Y.o.Y to RM388.0 mln.

• For 9MFY18, cumulative net profit fell 3.6% Y.o.Y to RM380.4 mln. Revenue for the period gained 6.0% Y.o.Y to RM1.17 bln. (The Star Online)

• Parkson Holdings Bhd’s 2QFY18 net losses stood at RM13.9 mln compared to net profit of RM72.7 mln in the previous corresponding quarter, dragged down by an impairment loss of RM36.0 mln. Revenue for the quarter rose 1.7% Y.o.Y to RM1.07 bln.

• For 1HFY18, cumulative net loss stood at RM57.4 mln vs. a net profit of RM10.1 mln in the previous corresponding period. Revenue for the period added 2.9% Y.o.Y to RM1.98 bln. (The Star Online)

• Serba Dinamik Holdings Bhd’s 4Q2017 net profit contracted 16.6% Y.o.Y to RM80.5 mln due to one-off additional tax liabilities including penalty. Revenue for the quarter, however, increased 9.0% Y.o.Y to RM797.4 mln.

• For 2017, cumulative net profit jumped 104.2% Y.o.Y to RM310.0 mln. Revenue for the period grew 92.6% Y.o.Y to RM2.71 bln. A final dividend of 1.6 sen per share was proposed. (The Star Online)
• Sime Darby Property Bhd’s (SimeProp) 2QFY18 net profit declined 5.1% Y.o.Y to RM138.1 mln, impacted by higher taxes and lower results of joint ventures that mitigated a jump in gross profit. Revenue for the quarter, however, gained 65.4% Y.o.Y to RM677.0 mln.
• For 1HFY18, cumulative net profit jumped 90.1% Y.o.Y to RM559.8 mln. Revenue for the period added 33.6% Y.o.Y to RM1.14 bln. (The Edge Daily)

• Wah Seong Corp Bhd’s 4Q2017 net profit stood at RM66.0 mln against a net loss of RM198.3 mln in the previous corresponding quarter amid the increase in project execution in oil and gas (O&G)-related operations. Revenue for the quarter jumped 196.5% Y.o.Y to RM979.2 mln.

• For 2017, cumulative net profit stood at RM113.0 mln against a net loss of RM228.3 mln in the previous year. Revenue for the year jumped 94.5% Y.o.Y to RM2.49 bln. (The Edge Daily)

• Genting Plantations Bhd's 4Q2017 net profit fell 37.8% Y.o.Y to RM117.7 mln, affected by higher cost of sales and higher finance cost. Revenue for the quarter, however, rose 2.9% Y.o.Y to RM528.4 mln.

• For 2017, cumulative net profit declined 0.2% Y.o.Y to RM337.7 mln. Revenue for the quarter, however, gained 21.9% Y.o.Y to RM1.80 bln. A final single-tier dividend of 11.0 sen per share was proposed. (The Edge Daily)

• WCT Holdings Bhd’s 4Q2017 net profit soared 16.9x Y.o.Y to RM59.3 mln on stronger revenue and other income. Revenue for the quarter grew 27.8% Y.o.Y to RM579.4 mln.

• For 2017, cumulative net profit jumped 126.2% Y.o.Y to RM154.6 mln. Revenue for the period, however, slipped 1.0% Y.o.Y to RM1.91 bln. A final single-tier dividend of 3.0 sen per share was declared.(The Edge Daily)

• Vertice Bhd has bagged a RM59.1 mln contract for the provision of engineering, procurement, construction and commissioning for an interconnecting road in Pengerang, Kota Tinggi, Johor. The 14-month subcontract will start from 26th February 2018 and be completed by 8th April 2019. (The Edge Daily)

• Dagang NeXchange Bhd (DNeX) has won a two-year contract to provide directional drilling equipment to Baker Hughes (M) Sdn Bhd (BHGE) in Asia Pacific and Middle East. The contract is estimated at about RM9.0 mln per year, the contract will begin on 1st March 2018 for two years and with an extension option of up to two years. (The Edge Daily)

• KPJ Healthcare Bhd’s 4Q2017 net profit grew 17.9% Y.o.Y to RM61.3 mln on higher revenue from its Malaysian operations. Revenue for the quarter added 13.3% Y.o.Y to RM833.7 mln.

• For 2017, cumulative net profit climbed 7.8% Y.o.Y to RM165.6 mln. Revenue for the year improved 7.1% Y.o.Y to RM3.18 bln. A single interim dividend of 0.5 sen per share, payable on 20th April 2018, was declared. (The Edge Daily)

• JAKS Resources Bhd’s subsidiary has obtained an interim stay, restraining two banks from releasing guarantee proceeds totalling RM50.0 mln to Star Media Group Bhd.

• The stay order, granted to 51%-owned subsidiary JAKS Island Circle Sdn Bhd (JIC), would last until the High Court hears the inter-parte injunctions which will see both sides presenting their arguments on 7th March 2018. (The Edge Daily)

Source: Mplus Research - 27 Feb 2018