A Good End To The Quarter

• The FBM KLCI extended its losses for the second straight day, weighed down by selling pressure in Press Metal amid concerns of higher steel tariffs. The lower liners retreated again with the FBM Ace (- 1.8%) taking the brunt of the damage. Meanwhile, the majority of the broader market closed in the red amid the prevailing bearish sentiment.

• Market breadth was still negative as losers beat winners ratio of 546-to-330 stocks. Traded volumes also declined by 9.4% to 1.89 bln as investors retreat to the sidelines ahead of the long weekend on Wall Street.

• Press Metal (-23.0 sen) led the decliners in the key-index, followed by Genting (- 15.0 sen), Telekom Malaysia (-12.0 sen), Petronas Chemicals (-10.0 sen) and Maxis (-9.0 sen). Meanwhile, BAT (-64.0 sen), Apollo Food (-24.0 sen), Malaysia Pacific Industries (-22.0 sen), Batu Kawan (-20.0 sen) and Allianz (-18.0 sen) underperformed its broader market peers. Iskandar Waterfront City also lost 17.0 sen after shareholders rejected Ekovest’s proposed plans to take-over the former.

• On the opposite side of the trade, broader market winners were Dutch Lady (+RM1.00), Heineken Malaysia (+80.0 sen), United Plantations (+38.0 sen), Chin Teck Plantations (+20.0 sen) and Apex Healthcare (+18.0 sen). Meanwhile, Nestle (+RM1.30), Tenaga Nasional (+36.0 sen), Hong Leong Bank (+12.0 sen), KLCC (+12.0 sen) and Public Bank (+4.0 sen) supported the gains on the blue chip gauge yesterday.

• On the regional sector, major Asian equities shrugged off the overnight weakness in Wall Street, closing higher on bargain-hunting activities. The Nikkei rose 0.6% - led by gains in chemical and utilities sectors, ahead of a string of Japanese economic releases. The Hang Seng Index (+0.2%) and the Shanghai Composite (+1.2%) also closed higher, alongside the majority of the ASEAN stockmarkets.
• U.S. stockmarkets rallied ahead of the holiday-shortened week on bargainhunting activities in technology large caps. The Dow and the S&P 500 added 1.1% and 1.4% respectively on Thursday, despite posting their worse quarterly decline in more than two years. The Nasdaq also advanced 1.6%, boosted by the rebound in tech-titans like Facebook and Alphabet.
• Earlier on, key European stockmarkets continued to trade higher – led by the strength in automakers as investors digested recent corporate deals in the auto industry. The FTSE (+0.2%) rallied to 7,056.6 points, while the DAX closed 1.3% higher on better-than-expected unemployment data. The CAC was also up by 0.7% on gains in Renault amid potential merger plans with Japanese subsidiary, Nissan Motor.

THE DAY AHEAD

• Despite the recovery of many global stock indices overnight, we continue to think that stocks on Bursa Malaysia will remain mostly rangebound between the 1,850 and 1,870 levels over the near term, albeit there could be some mild recovery to end the week. The general market conditions are still broadly indifferent due to the lack of leads and this will continue to limit market participation as market players await for the upcoming General Election.

• The lower liners and broader market shares will also continue to see reduced following with the lack of fresh leads but there could be some mild bargain hunting activities after many stocks prices in the above categories have fallen substantially over the past two months, ringing up some value propositions. However, the still tepid market interest could result in quick profit taking actions as retail players adopt hit-and-run tactics ahead of the weekend.
• On the big board, there is resistance and the 1,860 level, followed by the 1,870 level. The main support, meanwhile, is at the 1,850 level.

COMPANY UPDATE

• Comfort Gloves Bhd (CGB) 4QFY18 net profit tanked 41.5% Y.o.Y to RM4.8 mln, from RM8.2 mln in the previous corresponding year, dragged down by expenses related to its employees’ share option scheme (ESOS) of RM3.4 mln and provision for deferred tax of RM5.2 mln. Revenue, however, jumped 46.2% Y.o.Y to RM106.4 mln vs. RM72.7 mln a year ago.

• Cumulative FY18 net profit, however, added 38.8% Y.o.Y to RM35.9 mln vs. RM25.9 mln in FY17, lifted by stronger revenue contribution at RM421.2 mln (+60.2% Y.o.Y), from RM263.0 mln last year, as well as lower administrative expenses. Its bottomline was slightly dampened by significantly higher tax expenses owing to the aforementioned reason. The group has also proposed a final single dividend of 1.0 sen, which will be payable on a date to be announced later.

Comments

• CGB’s full year earnings came in broadly within our expectations at the pre-tax level. However, it missed our net estimates, accounting to only 87.8% of our full year net profit forecast. The difference was mainly due to: i) RM3.4 mln worth of shares awarded to CGB's staff and directors, and ii) provision for deferred tax up to RM5.2 mln in the 4QFY18.
• Stripping the one-off expenses related to shares issued under the employees' share option scheme (ESOS) will bring adjusted net profit of RM39.3 mln closer to our estimated, at about 96.1% of our full year net profit forecast. Revenue for the year meanwhile outperformed our expected FY18 revenue by 7.4% (or RM29.0 mln).
• Going forward, we trim our FY19 net profit estimates by 6.9% to RM39.8 mln (from RM42.7 mln) after adjusting our tax assumptions. FY19 revenue forecast, however, is unchanged at RM439.6 mln. We also take introduce our FY20 forecast net profit and revenue of RM42.8 mln and RM470.7 mln respectively following the closure of FY18.

• We maintain our BUY recommendation on CGB with a lower target price of RM1.20 (from RM1.30) by ascribing an unchanged PER of 17.0x to its revised FY19 EPS of 7.1 sen, owing to potentially higher tax expenses assumptions. The ascribed target PER is at a discount to the PER of industry bellwethers like Hartalega Holdings Bhd and Top Glove Corporation Bhd, due to its smaller market capitalisation and capacity.

COMPANY BRIEF

• Sapura Energy Bhd and its two joint venture (JV) partners was awarded Block 30 in Sureste Basin, a proven and prolific hydrocarbon province in the Gulf of Mexico. Block 30, which is in shallow waters of about 70 metres, directly to the south west of Premier's world-class Zama discovery and to the north of the Amoca oil field, was the most contested block in the bid. The JV's plan is to acquire a 3D seismic readout in 2019 ahead of firming up drilling locations in 2020. (The Star Online)

• Ekovest Bhd failed to get shareholders support for the takeover of Iskandar Waterfront City Bhd (IWC) at its EGM on 29th March 2018. Approximately 69.2% of shareholders voted against the resolution and 30.8% were in favour. In the proposal, Ekovest offered IWC shareholders a share swap or cash of RM1.50. The proposal only involved 62% of IWC. The rationale for the exercise was to match IWC’s landbank with Ekovest’s cash flow. (The Star Online)

• Metronic Global Bhd has secured a contract worth RM50.0 mln from Mass Rapid Transit Corp Sdn Bhd (MRT Corp). The project is for the design and commissioning of underground works for the Sungai Buloh — Serdang — Putrajaya line. The contract commenced in March 2018 and shall be completed by July 2021. (The Edge Daily)

• Eco World Development Group Bhd’s 1QFY18 net profit shrank 79.2% Y.o.Y to RM24.1 mln, largely due to a RM94.8 mln disposal gain recorded in the previous corresponding quarter. Revenue for the quarter slipped 4.9% Y.o.Y to RM563.6 mln. (The Edge Daily)

• Eco World International Bhd’s (EWI) 1QFY18 net loss widened to RM16.2 mln vs. a net loss of RM6.1 mln in the previous corresponding quarter due to lower unrealised foreign exchange gains. Revenue for the quarter slumped 94.5% Y.o.Y to RM18,000, as revenue for its property developments will only be recognised upon completion and delivery from 3Q2018. (The Edge Daily)
• Berjaya Assets Bhd (BAssets) has proposed a bonus issue of 1.28 bln warrants on the basis of one warrant for every two shares held. The warrants have an exercise price of 35 sen apiece. (The Edge Daily)

• Excel Force MSC Bhd has proposed to dispose of its office premises in Plaza 33 to the owner of the building for RM15.7 mln, which will help it repay outstanding banking facilities of RM4.0 mln. The group has entered into a conditional sale and purchase agreement with Plaza 33 Sdn Bhd on 29th March 2018 for the 18,988 sq.ft. property. (The Edge Daily)

• Prestariang Bhd has been awarded an RM38.2 mln contract by the Inland Revenue Board to provide Microsoft software licences, products and services under an extended master licensing agreement (MLA). The MLA will last for three years. (The Edge Daily)

• OSK Holdings Bhd (OSKH) has submitted an application to the Hong Kong Stock Exchange to list its cable business unit OCC Cables Ltd on the Main Board. The proposed listing would constitute a deemed disposal by OSKH, arising from the dilution of no more than 30.0% of its equity interest in OCC Cables. Upon completion, OSKH would hold not more than 75.0% of the enlarged issued share capital of OCC Cables. (The Edge Daily)

Source: Mplus Research - 30 Mar 2018