Still Going Nowhere

• The FBM KLCI closed in the red after lingering mostly in the negative territory, amid soft global stockmarket sentiments. All the lower liners resumed their downward momentum, with the FBM Ace (-2.0%) taking the worst beating, while the broader market also suffered losses yesterday.

• Market breadth was dampened as decliners topped advancers on a ratio of 651-to-251 stocks. Traded volumes inched higher by 2.3% to 2.08 bln as risk appetite remain dampened amid the ongoing global uncertainties.

• Genting-related counters like Genting Malaysia (-18.0 sen) and Genting (-5.0 sen) weighed on the Main Board, followed by Ambank (-11.0 sen), Sime Darby Plantation (-7.0 sen) and Telekom Malaysia (-6.0 sen). Meanwhile, Heineken Malaysia (-64.0 sen), KESM Industries (- 64.0 sen), Hengyuan Refining (-35.0 sen), Ajinomoto (-22.0 sen) and Petron Malaysia Refining (-18.0 sen) were amongst the broader market losers on Wednesday.

• On the contrary, chart-toppers were Panasonic Manufacturing (+48.0 sen), Southern Acids (+30.0 sen), LPI Capital (+20.0 sen), Hai-O Enterprise (+12.0 sen) and Boustead Heavy Industries (+10.0 sen). Significant heavyweights frontrunners were Hong Leong Financial Group (+8.0 sen), Tenaga Nasional (+8.0 sen), KLCC (+7.0 sen), Hong Leong Bank (+6.0 sen) and Petronas Dagangan (+6.0 sen).

• Major Asian returned to the negative territory, weighed down by a broad decline in technology stocks following potentially stricter regulations that could stifle Chinese investment in technology companies on national security concerns. The Nikkei (-1.3%) was beaten down to 21,031.3 points, despite recovering some of its earlier losses in a last-minute rally, while the Hang Seng Index (-2.5%) and the Shanghai Composite (-1.4%) were hit by sharp losses in the tech sector. The bulk of ASEAN equities also slipped on Wednesday’s close.
• Wall Street narrowed again on extended selling-pressure in technology equities as investors shift out of technology stocks into safer assets. The Dow (-0.04%) inched lower after gyrating between the negative and positive territory. Meanwhile, the Nasdaq (-0.9%) and the S&P 500 (-0.3%) were more badly hit due to losses in tech heavyweights.
• European equities finished mostly higher – despite the generally bearish sentiment in global stockmarkets. The FTSE rose 0.6%, helped by gains in Shire (+14.0%) on potential acquisition deals. The CAC gained 0.3% to 5,130.4 points, although the DAX (-0.3%) slipped into the red after trading in mostly in the negative territory.

THE DAY AHEAD

• The FBM KLCI has remained broadly rangebound and only retreated modestly yesterday despite the weakness in global equity indices of late. As it is, the key index is finding support from institutional players to help it remain within the 1,850 and 1,870 ranges amid a still indifferent market environment.

• We see similar moves over the near term on the key index with continuing institutional support to ensure that the FBM KLCI remains rangebound within the aforementioned levels as market players await for the announcement of the upcoming General Election.

• There is also little reprieve for stocks in the broader market and among the lower liners as they continue to whittle down amid the lack of sustainable leads that is causing more market players to stay on the sidelines. We see this trend sustaining over the near term as there are still few incentives for retail players to return to the market given the present insipid market environment.

COMPANY UPDATE

• OCK Group Bhd has entered a Memorandum of Understanding with ISCO Infrastructures Inc to pursue tower business opportunities in the Philippines. Under the terms of the collaboration, OCK and ISCO will jointly acquire, install, operate, maintain and manage telecom tower assets in the Philippines, concentrating in the new towers rollout/greenfield projects and potential sale-and-leaseback project from mobile telecom operators. The Philippines has the lowest telecom towers per capita at 152 towers per 1.0 mln capita vs. ASEAN’s average of 579. Furthermore, Philippines' 4G access is also the lowest at 59.0% vs. the ASEAN average of 72.0%. (The Star Online)

Comments

• We view that the aforementioned collaboration positively for OCK to cement its’ footprint into the Philippines market. The move is also in line with OCK’s long term strategy to become the largest telecommunication network service provider in the ASEAN market. Given that there is no potential earnings contribution for now, we made no changes to our earnings forecast and we maintain our BUY recommendation on OCK with an unchanged target price of 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.
• Kim Loong Resources Bhd’s 4QFY18 net profit climbed 16.5% Y.o.Y to RM19.3 mln, lifted by higher production from the plantation segment that offset the lower average selling prices, coupled with higher processing margins from the milling segment. Revenue for the quarter added 5.4% Y.o.Y to RM269.8 mln. For FY18, cumulative net profit rose 39.3% Y.o.Y to RM99.1 mln. Revenue for the year expanded 20.5% Y.o.Y to RM1.08 bln.
• The results came within expectations with its revenue amounting to 95.9% of our full-year forecast of RM1.12 bln, while its net profit came in at 98.7% of our estimate of RM100.4 mln.

Comments

• We continue to like KLR as one of the most efficient local crude palm oil planter with a superior yield per hectare vs. Malaysia’s average over the past few years. With the reported results coming within our estimates, we leave our earnings forecast unchanged and we maintain our BUY recommendation on KLR with an unchanged target price of RM4.65.

• Our target price is derived by ascribing an unchanged target PER of 14.0x to its FY19 EPS of 33.4 sen. The ascribed target PER is in line with the industry average of around 13.5x-15.5x. At the target price of RM4.65, KLR will trade an implied PER of 13.9x and 14.0x for FY19 and FY20 respectively, which is fair, in our view, given the cyclical nature of the crude palm oil industry.

• V.S. Industry Bhd (VSI) posted a 27.5% Y.o.Y gain in its 2QFY18 net profit to RM45.3 mln, from RM35.5 mln in the same quarter last year, in-line with the stronger revenue contribution (+45.8% Y.o.Y) at RM1.11 bln mln vs. RM763.8 mln in 2QFY17 and higher other income, as well as lower tax expense.

• Cumulative 1HFY18 net profit meanwhile, jumped 32.2% Y.o.Y to RM91.3 mln, from RM69.0 mln a year earlier – led by the aforementioned reasons, while revenue spiked up by 52.3% Y.o.Y to RM2.20 bln, compared to RM1.44 bln last year. The group has proposed a second interim dividend of 1.5 sen per share, which will be paid on 27th April 2018.

Comments

• The 1HFY18 results missed our expectations by 9.6%, accounting to only 40.4% of our previous FY18 net profit forecast of RM226.1 mln, despite revenue meeting 48.5% of our full year forecast. The disparity was mainly due to delays in capacity expansion as well significantly lower bottomline contribution from the China segment which ultimately crimped margins.

• In-tandem with the lower-thananticipated 1HFY18 results, we adjust our FY18 earnings and revenue forecast to RM190.7 mln (-15.7%) and RM4.51 bln (-0.5%) respectively, to account higher start-up costs and thinner margins. Stiff competition in China, increasing prices of raw materials and a stronger Ringgit is also expected to weigh on FY18’s bottomline. Meanwhile, FY19 earnings and revenue estimates were also reduced by 10.9% and 7.4% to RM269.4 mln and RM2.96 bln respectively.
• Nevertheless, we reiterate our BUY recommendation on VSI, but with a lower target price at RM3.25 (from RM3.60) after adjusting bottomline estimates to reflect a more realistic growth estimate after its weaker-thanexpected 1H2018 performance.
• The target price is achieved by ascribing an unchanged target PER of 18.0x to its revised FY19 diluted EPS of 18.1 sen. The ascribed target PER is at a small premium to its closest competitor, SKP Resources which we believe is justified in view of the group’s leading position in Malaysia’s EMS industry.

• The premium is also accorded for its wide array of supply chain services and solid earnings track-record as well as the potentially strong forward earnings growth on offer. Meanwhile, new contract announcements could be further re-rating catalyst.

COMPANY BRIEF

• Sapura Energy Bhd’s 4QFY18 net loss ballooned to RM2.29 bln vs. a net loss of RM172.3 mln in the previous corresponding period, impacted by impairment charges of RM2.10 bln in its engineering and construction and drilling segments. Revenue for the quarter fell 34.4% Y.o.Y to RM1.19 bln.

• For 9MFY18, cumulative net loss stood at RM2.50 bln vs. a net profit of RM208.3 mln in the previous year. Revenue for year declined 23.0% Y.o.Y to RM5.89bln. (The Star Online)

• Astro Malaysia Holdings Bhd’s 4QFY18 net profit rose 25.3% Y.o.Y to RM181.8 mln, driven by lower net finance costs due to favorable unrealised forex gain arising from unhedged non-current balance sheet liabilities. Revenue for the quarter, however, declined marginally by 0.7% Y.o.Y to RM1.39 bln.

• For FY18, cumulative net profit added 23.6% Y.o.Y to RM770.6 mln. Revenue for the year, however, fell 1.5% Y.o.Y to RM5.53 bln. (The Star Online)

• S P Setia Bhd has been hit for the second time in less than four months with a tax bill by the Inland Revenue Board, this time amounting to RM32.5 mln. S P Setia was served notices of additional assessment by the IRB on 27th March 2018 for an additional income tax of RM22.4 mln and a penalty of RM10.1 mln.

• This was for the disallowance of the interest expenses deducted by S P Setia as a deductible expense in the years of assessment 2011 to 2015 and the disallowance of the common expenses deducted by S P Setia as a deductible expense in the years of assessment 2009 to 2015. (The Edge Daily)

• Tenaga Nasional Bhd has signed a large-scale solar photovoltaic power purchase agreement with special purpose company, KBJ Hecmy Sdn Bhd in conjunction with a competitive bidding exercise by the Energy Commission to develop transmissionconnected LSS projects. KBJ Hecmy will design, construct, own, operate and maintain a solar photovoltaic energy generating facility of 30 megawatt alternating current to be located in Mukim Chuping, Bukit Keteri, Perlis. The agreement has an expected commercial operation date of 1st December 2020. (The Edge Daily)

• PUC Bhd has inked a Memorandum of Understanding with Ali Health Sdn Bhd, the developer and exclusive owner of medical mobile application, Doctor2U to promote blockchain technology in the healthcare industry. The collaboration aims to provide blockchain to medical institutions, labs, drug supply-chain, and health insurance agencies, as well as build an information sharing platform among these institutions, regulators and insurers. (The Edge Daily)

• Tan Sri Tiong Hiew King has stepped down as Executive Chairman of Media Chinese International Ltd (MCIL), taking up a Non-Independent, Non-Executive directorship in the group instead. His younger brother, Datuk Seri Tiong Ik King, will be redesignated as NonExecutive Chairman from his current role of Non-Independent Director. (The Edge Daily)

• DKLS Industries Bhd has secured an RM101.8 mln job from the Agriculture and Agro-Industry Ministry to undertake a water transfer scheme project in Kedah. The group accepted the letter of award for the two-year contract from the ministry on 28th March 2018 to be the contractor for the Projek Skim Pemindahan Air Jeniang Kedah (Fasa 1). (The Edge Daily)

• Priceworth International Bhd expects its monthly log production volume to improve in the coming months after registering a near six-year high in February 2018 of 18,062.0 c.m. on the back of better weather conditions and increased production in a new area. The output in February 2018 was 57.6% Y.o.Y higher than the 11,459.5 c.ms logged in the same period in 2017. (The Edge Daily)

• Titijaya Land Bhd is buying 9.9 mln shares or a 99.0% stake in loss-making BJ Properties Sdn Bhd, which owns a 27,550 sq.m. piece of land in Ampang. The land is expected to be developed into a mixed residential and commercial project, with a gross development value estimated at RM1.50 bln. (The Edge Daily)

• EA Technique (M) Bhd has filed a suit against Amaniaga Resources Sdn Bhd for US$7.1 mln (RM27.4 bln) in damages due to an alleged breach of a January 2016 contract to provide services for a floating storage and offloading vessel. The group had filed a writ of summons together with a statement of claim, both dated 20th March 2018, for a claim arising out of an award under the Construction Industry Payment and Adjudication Act. (The Edge Daily)

Source: Mplus Research - 29 Mar 2018