A Mild Rebound

• Tracking the positive developments on Wall Street overnight, the FBM KLCI (+1.1%) halted its three-day losing streak, lifted by bargain hunting in select blue chip stocks. The lower liners – the FBM Small Cap (+1.9%), FBM Fledgling (+1.2%) and FBM ACE (+2.8%) all rebounded, while broader market ended higher alongside with the key index.
• Market breadth was turned positive as advancers outnumbered decliners on a ratio of 660-to-344 stocks. Traded volumes, however, slipped 32.3% to 2.22 bln shares as market participants remain wary of the recent volatile market performance.
• Two-thirds of the key index components advanced, led by Hong Leong Financial Group (+90.0 sen), followed by Hong Leong Bank (+72.0 sen), Genting Malaysia (+30.0 sen), AmBank (+20.0 sen) and Telekom (+20.0 sen). Amongst the biggest gainers on the broader market were Dutch Lady (+76.0 sen) Heng Yuan (+72.0 sen), Petron Malaysia (+70.0 sen) and KESM Industries (+64.0 sen). Top Glove added 40.0 sen after completed the acquisition of Aspion Sdn Bhd. 
• In contrast, notable decliners on the broader market include BAT (-94.0 sen), Panasonic (-16.0 sen), UMS Neiken Group (-14.5 sen) and Bintulu Port (-10.0 sen). Bertam Alliance sank 14.0 sen after slipping into PN17 status. Key losers on the big board were PPB Group (-22.0 sen), Petronas Dagangan (-8.0 sen), Astro (-4.0 sen), MISC (-3.0 sen) and DIGI (-2.0 sen).

• Japanese equities extended their gains as the Nikkei gained 1.5%, lifted by the weaker Japanese Yen against the Greenback. Both the Shanghai Composite and Hang Seng Index were closed for the Tomb Sweeping Day public holiday. ASEAN stockmarkets, meanwhile, closed mostly higher yesterday.

• U.S. stockmarkets advanced for the third straight session as the Dow added 1.0% as concern over trade war was dialled down. On the broader market, the S&P 500 gained 0.7% with ten of the eleven major sectors advancing, while the Nasdaq finished 0.5% higher.

• Earlier, European stockmarkets – the FTSE (+2.4%), CAC (+2.6%) and DAC (+2.9%), all rallied to close at three-week high, boosted by the positive sentiment across Wall Street and Asian stockmarkets. Meanwhile, Eurozone’s Markit Composite PMI stood at 55.2 in March 2018, easing from 57.1 recorded in February 2018.

The Day Ahead

• Despite a still largely cautious market environment, institutional buying lent support to push the key index higher yesterday. With global equity markets still on the mend, there could be further near term upsides on Bursa Malaysia as it looks to end the week on a firmer note.

• Nevertheless, we think the upsides may be capped by profit taking activities as some market players could opt to lock in their gains as they await for updates on the imminent General Election. Therefore, after yesterday’s strong gains, the near term gains may be limited to the next resistance of 1,840 level. Further ahead, the resistance is at the psychological 1,850 level. The supports, meanwhile, are at 1,830 and1,820 levels.

• We also think quick profit taking activities may curtail the gains on the lower liners and broader market shares after their hefty recoveries yesterday.

COMPANY UPDATE

• Protasco Bhd has secured new road maintenance contracts in Perak for a total RM216.0 mln and an eight-year concession for the upkeep of federal roads in four other states. In Perak, Protasco’s subsidiary, Empayar Indera Sdn Bhd had won two separate five year contracts by the state Government, with another two year extension, to perform routine and periodic maintenance works for both state roads and agricultural roads.
• Under the new deal, Protasco will provide for the upkeep of both state and agricultural roads in Perak until end of 2026. Meanwhile, another subsidiary, Roadcare (M) Sdn Bhd has entered into a concession agreement with the Federal Government to extend a road maintenance contract in four states. The concession agreement covers the maintenance of federal roads in the states of Selangor, Pahang, Terengganu and Kelantan. The concession duration commenced on 17th February 2018 and will expire on 17th February 2026. (The Star Online)

Comments

• The abovementioned three contracts are part of the group’s renewal of existing maintenance contracts. We deem that the renewals are a testament of Protasco’s capability as one of the largest road maintenance company in Malaysia. With the incorporation of the renewals, the group’s maintenance segment unbilled orderbook has been bumped up to RM5.26 bln (from RM4.60 bln) that will provide earnings visibility till 2028.

• We raised our earnings forecast for 2018 and 2019 by 7.6% to RM40.3 mln and 10.2% to RM41.2 mln to reflect the additional earnings from the concession renewals. Consequently, we maintain our BUY recommendation on Protasco with a higher target price of RM1.15 (from RM1.10).

• We arrive our target price on a sum-of-parts 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’ valuation 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

• MyHSR Corp Sdn Bhd has appointed the consortia of Malaysian Resources Corp Bhd – Gamuda Bhd (MRCB Gamuda Consortium), and Syarikat Pembenaan Yeoh Tiong Lay Sdn Bhd – TH Properties Sdn Bhd (YTL-THP) as its project delivery partners (PDP) for the Kuala Lumpur–Singapore High Speed Rail (HSR) civil works portion.

• MRCB Gamuda Consortium has been selected for the northern part of the alignment, while YTL-THP has been selected for the southern portion. The contracts will be awarded upon the completion of negotiations between MyHSR Corp and the PDPs. Syarikat Pembenaan Yeoh Tiong Lay is a subsidiary of wholly-owned subsidiary of YTL Corp.

• To recap, the PDP tender was called on 22th November 2017, inviting parties with experience in railway design and construction, familiar with Malaysian railway construction practices and regulatory requirements. (The Star Online)

• Perak Corp Bhd’s subsidiary, Lumut Maritime Terminal Sdn Bhd (LMT) has entered into three operation & maintenance (OM) agreements with Lekir Bulk Terminal Sdn Bhd (LBT), which are expected to contribute RM800.0 mln over a period of 26 years. The abovementioned contracts are related party transactions as LBT is an associate company of LMT, by virtue of 50.0% minus one share held by Pelaburan Lumut Sdn Bhd in LMT. Pelaburan Lumut also owns 80.0% in LBT.

• The first agreement is an addendum to an existing agreement between LMT and LBT which was signed in June 2000, for a 10-year extension following the expiry of the 15-year term ended May 2017. Meanwhile, the other two new OM agreements valued at RM266.7 mln and RM205.9 mln respectively are for provision of OM services for two new jetty terminal user agreements. (The Edge Daily)

• GHL Systems Bhd is buying payment solutions company, Paysys Communications Sdn Bhd for RM80.0 mln, giving the group the opportunity to solidify its presence as a payment solutions provider in Malaysia. The proposed acquisition will be paid via RM40.0 mln cash and an issuance of up to 33.5 mln new GHL shares at issue price of about RM1.19. (The Edge Daily)

• Dialog Group Bhd is planning to build a common tankage and dedicated deepwater marine facilities at Pengerang Deepwater Terminal (PDT) in Pengerang, Johor which will cost around RM2.5 bln, in a joint-venture (JV) with the Johor state government and the State Secretary, Johor (Inc) (SSI). 
• This forms the third phase of PDT (PDT3) and business activities at PDT3 will be undertaken by Pengerang CTF Sdn Bhd (PCTF), where Dialog will hold an 80.0% stake and the rest by the Johor government via its investment arm Permodalan Darul Ta’zim Sdn Bhd. (The Star Online)

• Benalec Holdings Bhd was awarded a RM21.5 mln contract from Oriental Holdings Bhd for the construction and maintenance of a rock revetment project in Melaka. The project involves the construction and maintenance of rock revetment and associated works over a 1.85 km stretch between Kuala Sungai Melaka and Kuala Sungai Seri Melaka.

• Under the contract, Benalec will be laying rocks along the coastline between Kuala Sungai Melaka and Kuala Sungai Seri Melaka as coastal protection work to avoid future erosion.

• The 18-month project will start upon Oriental obtaining the necessary approval from the relevant authorities. (The Star Online)  

Source: Mplus Research - 6 Apr 2018