The Selling Pressure Returns

• Following the announcement of Parliament dissolution to pave way for the next General Election (GE14), the FBM KLCI (+0.1%) managed to eke out minor gains after hovering in the negative territory for most of the trading session last Friday. Despite that, the key index extended its weekly losses, falling 1.4% W.o.W. The lower liners, however, ended mostly lower FBM Small Cap and FBM Fledgling fell 0.5% and 0.4% respectively, while the broader market closed mostly lower.

• Market breadth turned negative as decliners outpaced advancers on a ratio of 589-to-382 stocks. Traded volumes, however, added 36.5% to 3.03 bln shares amid the final hour bargain hunting in in both the large and mid-small cap stocks.

• Key winners on the local bourse were Telekom (+25.0 sen), Maxis (+17.0 sen), DIGI (+11.0 sen), KLK (+6.0 sen) and Petronas Dagangan (+6.0 sen). Petrochemical Refineries like Heng Yuan (+RM1.48) and Petron Malaysia (+71.0 sen) topped the broader market advancers list, followed by Panasonic (+22.0 sen), Hartalega (+17.0 sen) and Hong Leong Industries (+16.0 sen).

• On the flipside, amongst the biggest decliners on the broader market were Dutch Lady (-RM1.02), BAT (-46.0 sen), KESM Industries (-22.0 sen), MPI (-22.0 sen) and Scientex (-21.0 sen). Meanwhile, big board losers include Press Metal (- 33.0 sen), RHB Bank (-14.0 sen), AmBank (-12.0 sen), Genting (-11.0 sen) and Hong Leong Bank (-10.0 sen).

• Asia benchmark indices ended on a mixed note as the Nikkei fell 0.4% after enduring a volatile trading session as the Japanese Yen advanced against the Greenback. The Shanghai Composite slipped 0.2%, pressured by the final hour selling activities after the government vowed to counter U.S. trade protectionism policy, but the Hang Seng Index climbed 1.1%. ASEAN stockmarkets, meanwhile, closed mixed last Friday.

• U.S. stockmarkets was under pressured again last Friday as the Dow sank 2.2% after trade war tension between U.S. and China escalated. Similarly, the S&P 500 (- 2.2%) erased all its previous session gains with all eleven major sectors in the red, while the Nasdaq (-2.3%) retreated to close below the 7,000 psychological level.

• Earlier, European stockmarkets – the FTSE (-0.2%), CAC (-0.4%) and DAC (- 0.5%), all erased their intraday gains on concerns over the heightened trade tensions. Commodity giants like Glencore (-2.1%), Rio Tinto (-1.9%) and BHP Billiton (-1.5%), all sank. The weakness was also compounded with the appreciation of Euro currency against the Greenback.

The Day Ahead

• With global equity markets under pressure again, we think last Friday’s superficial gains on the FBM KLCI will give way to renewed selling pressure again and this will leave the key index to start the week on a dour note.

• As it is, the broad market conditions are still cautious with the trade war rhetoric affecting market sentiments that could prolong the global market’s consolidation trend. There is also few catalyst to nudge the equities higher with the current equity valuations largely reflecting the stronger earnings growth on offer for 2018.

• Meanwhile, we do not see significant movements on Bursa Malaysia as a whol, and we expect the market environment to stay wary up to the next General Election, judging by the historical trend where the key index is likely to be mostly rangebound ahead of the voting day.

• Therefore, we see the lower liners and broader market shares remaining pressured with the downside risk prevailing as more retail players stay on the sidelines awaiting for a clearer market direction over the near term.

Company Update

• Suria Capital Holdings Bhd has dropped its plan to sell a stake in wholly-owned subsidiary Sabah Ports Sdn Bhd (SPSB) to MMC Corp Bhd. It did not give a reason for its decision. Back in 10th August 2017, Suria has reported to be in talks with MMC for the stake sale. SPSB holds a 30-year concession to operate eight ports in Sabah, commencing 2004. (The Edge Daily)

Comments

• We are neutral on the abortion of stake sale of Sabah Ports Sdn Bhd (SPSB) as there will be no financial impact on the group’s operations. As we did not incorporate the aforementioned stake sale into our assumption, we made no changes to our earnings forecast and we maintain a BUY recommendation with an unchanged target price of RM2.30.

• We value Suria through a sum-of-parts (SOP) approach as we valued both its port operations and property development segments on a discounted cash flow approach (key assumptions include a WACC of 8.5%, 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 10.0x target PER to both its logistics and bunkering contract as well as engineering and ferry terminal operations businesses, based on their potential earnings contribution in 2018.

• Comfort Gloves Bhd has announced that the move by the US Food and Drug Administration (FDA) to put its whollyowned subsidiary, Comfort Rubber Gloves Industries Sdn Bhd (CRGISB) under the regulator's import alert list has not disrupted its glove-making operations as the listing does not prevent the group from exporting to the US.

• However, it was noted that CRGISB examination glove shipments to the US will require inspections upon arrival in the country and released only after passing an inspection. Meanwhile, Comfort is working towards removing its unit from the import alert list through its US agents and is confident of securing the removal from it. (The Edge Daily)

Comments

• Following Comfort Gloves Bhd’s admission into the US Food and Drug Administration (FDA) import alerts, we foresee potential delays in shipments, in addition to higher expenses due to storage costs. Although the group has guided that its glove shipments can still be exported to the US, we concur that there is also an increased risk of the glove shipments being refused entry or destroyed if Comfort fails to provide sufficient proof that it has meet FDA compliance requirements.

• Subsequently, we trim our FY19 and FY20 forecast net profit by 34.0% - 26.0% to account for the increased risk, potentially higher costs and shipment delays. We also downgrade our recommendation on CGB to HOLD (from Buy) with a lower target price of RM0.80 (from RM1.20) by ascribing an unchanged PER of 17.0x to its revised FY19 EPS of 4.7 sen.

• The ascribed target PER remains 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. Potential re-rating catalyst could include the removal of Comfort Gloves from the US FDA import list.

Company Update

• TA Enterprise Bhd has entered into a provisional agreement with Champion Castle Ltd and Zeppelin Property Development Consultants Ltd to sell two office units at Tower One Lippo Centre in Hong Kong for HK$137.0 mln (RM67.5 mln). The sale proceeds will be used to pare borrowings. (The Star Online)

• Stainless steel multi-ply cookware manufacturer, Ni Hsin Resources Bhd has emerged as a substantial shareholder in Caely Holdings Bhd, a lingerie manufacturer-cum-property developer, after buying 5.8 mln shares (or 7.3% equity stake) in Caely for RM4.6 mln over the past 12 months.

• The group expects a synergy to arise for both parties, whereby they can leverage on each other’s customer base in the overseas market segment. Ni Hsin will also benefit from Caely’s direct selling licence to market the former’s PENTOLI products and intends to seek board representation in Caely. (The Star Online)

• Lion Diversified Holdings Bhd has announced that part of its land in Kuala Langat district in Selangor has been compulsorily acquired by the Land Office, with a compensation sum of RM11.7 mln paid on 4th April 2018. The land was needed for the routing of the 500kV power transmission by Tenaga Nasional Bhd. (The Star Online)

• Tafi Industries Bhd's Executive Chairman, Datuk Saw Eng Guan has been re-designated as the group's Managing director.

• Datuk Saw was appointed to the board in 2004 and had been Executive Chairman since 2007. Datk Saw has an 8.0% direct interest in the group and is the son of the late Saw Han Lim, whose estate is a substantial shareholder. (The Edge Daily)

• Sanichi Technology Bhd is acquiring a 50.0% equity interest in a financial technology (fintech) company named Bina Bicara Sdn Bhd, which is anticipated to partner with an Indonesian company for the proposed provision of money remittance services.

• The group will pay around RM0.5 mln to acquire the controlling stake in Bina Bicara, while the latter will execute a Memorandum of Understanding (MoU) and subsequently a joint-venture agreement with PT Finnet Indonesia for the abovementioned business.

• The partnership will include, but not be limited to, money remittance services from Malaysia to Indonesia as well as other resultant ancillary business. (The Edge Daily)  

Source: Mplus Research - 9 Apr 2018