Poised For A Mild Rebound

• The FBM KLCI narrowed 0.7% on the back of losses in selected heavyweights amid the prevailing bearish sentiment in the global equities. All the lower liners were splashed in red, together with an equally depressed broader market, which was weighed down mostly by the Technology sector (-3.6%).

• Market breadth was negative as decliners beat advancers on a ratio of 574-to-291 stocks. Traded volumes fell marginally by 2.7% lower to 1.87 bln shares amid the foreign outflows in the local stockmarket.

• Nestle (-RM8.40) led the key-index lower, alongside banking heavyweights like Public Bank (-26.0 sen), Hong Leong Bank (-24.0 sen) and Hong Leong Financial Group (-16.0 sen). KLCC (-18.0 sen) also closed sharply lower on Wednesday. Semiconductor makers like Malaysian Pacific Industries (-42.0 sen), Unisem (-40.0 sen) weighed on the broader market, followed by Top Glove (- 44.0 sen), Kossan Rubber (-29.0 sen) and Hong Leong Industries (-28.0 sen).

• On the opposite side of the trade, BAT (+70.0 sen), Dutch Lady (+42.0 sen), MSM Malaysia (+16.0 sen), Sam Engineering (+14.0 sen) and Supermax (+14.0 sen) led the gainers in the broader market. The four blue-chip advancers include MISC (+8.0 sen), PPB Group (+8.0 sen), Digi (+4.0 sen) and Hap Seng Consolidated (+1.0 sen).

• Asian stockmarkets retreated on the back of sharp losses in Wall Street overnight and rising bond yields. The Nikkei finished 0.3% lower after lingering in the red for the entire intraday session, while the Shanghai Composite Index lost 0.4% to close slightly above the 3,117.0 psychological level. The Hang Seng (- 1.0%) also closed in the red, alongside majority of the ASEAN equities that closed on softer footing.
• U.S. benchmark indices ended its losing streak, boosted by a last-minute rally as investors digested strong corporate earnings releases. The Dow finished higher for the first time in five days, propelled by gains in Boeing (+4.2%). Most of the S&P (+0.2%) stocks also closed on stronger footing after scandalridden Facebook’s reported earnings that topped analysts’ forecasts, while the Nasdaq (-0.1%) flatlined.

• Earlier, the majority of European bourses closed lower amid worries of potentially higher borrowing costs, in-tandem with rising bond yields. The DAX saw the worse selloff, closing 1.0% lower to 12,422.3 points, while the CAC lost 0.6%. The FTSE (-0.6%), meanwhile, also snapped its six-day winning streak, although slightly offset by gains in Sky (+3.9%) following a takeover offer by British pay-tv operator Comcast.

The Day Ahead

• Although the broad market condition is still dour and cautious, we think the key index could stage a rebound after it shed more than 40 points after it set a new alltime high closing last week. As it is, the sharp fall is seen as overdone and we think the FBM KLCI will now attempt to find support around the psychological 1,850 level, where it appears to be holding yesterday.

• Any rebound, however, could still be capped for now as market participation is thinning with few leads available and wariness is persisting ahead of the upcoming General Election. Therefore, we see the key index finding resistance at around the 1,855 and 1,860 levels, while the 1,840 level is the next support level if the 1,850 level is breached.

• Similarly, we see the continuing dour trend among the lower liners and broader market shares as most retail players are still staying on the sidelines with few trading catalysts to entice fresh buying.

COMPANY UPDATE

• Protasco Bhd’s associate company will develop a 6.8 MW large scale solar photovoltaic plant (LSSVP) in Alor Gajah, Melaka. I2 Solarpark One Sdn Bhd, in which Protasco has a 44.0% stake through its wholly-owned subsidiary Ikram Greentech Sdn Bhd, received the letter of award for the project which is valued at approximately RM92.0 mln from the Energy Commission of Malaysia. Consequent to the award of the project, I2 Solarpark has signed a 21-year power purchase agreement with Tenaga Nasional Bhd. The LSSPV plant is expected to commence operations by December 2020.

Comments

• We were not surprised by the aforementioned new business venture as the group has been planning to venture into the renewable energy sector in bid to seek a source of long-term recurring income generator. With no potential earnings contribution of from the solar energy business until end-2020 that is beyond our forecast period, we leave our earnings forecast unchanged and we maintain our BUY recommendation on Protasco with an unchanged target price of RM1.00.

• 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 are 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

• Westports Holdings Bhd’s 1Q2018 net profit fell 12.1% Y.o.Y to RM123.8 mln due to higher depreciation and finance cost. Revenue for the quarter slipped 26.1% Y.o.Y to RM385.1 mln. (The Star Online)

• Bursa Malaysia Bhd's 1Q2018 net profit rose 12.6% Y.o.Y to RM63.8 mln, mainly due to higher revenue contribution from the securities market as average daily trading value for on-market trades increased 14.2% Y.o.Y to RM2.70 bln. Revenue for the quarter climbed 5.6% Y.o.Y to RM150.7 mln. (The Star Online)

• Hap Seng Consolidated Bhd has agreed to acquire the commercial vehicle business of Mercedes-Benz Malaysia Sdn Bhd for an undisclosed sum. The proposed acquisition enables the Hap Seng group to participate in the wholesale distribution of the MercedesBenz and Fuso commercial vehicles in the growing market in Malaysia. The acquisition would further strengthen the group’s presence as a player for both passenger cars and commercial vehicles in Malaysia. It will also run the operations of Mercedes-Benz Malaysia commercial vehicle training centre. (The Star Online)

• Dutch Lady Milk Industries Bhd’s 1Q2018 net profit rose 7.2% Y.o.Y to RM34.2 mln, driven by higher revenue and lower input costs. Revenue for the quarter grew 6.4% Y.o.Y to RM266.1 mln. (The Edge Daily)
• Axis Real Estate Investment Trust's (Axis REIT) net property income grew 6.1% Y.o.Y to RM38.2 mln on higher rental growth. Revenue for the quarter rose 5.6% Y.o.Y to RM45.1 mln. A first interim distribution per unit of 1.9 sen, payable on 31st May 2018, was declared. (The Edge Daily)

• Kuala Lumpur Kepong Bhd (KLK) has proposed to acquire a 95.0% stake in Indonesia’s PT Putra Bongan Jaya (PBJ) or 139,308 shares of nominal value RP500,000 per share from PT REA Kaltim Plantations for RM296.4 mln, subject to adjustments. The consideration for the proposed acquisition shall be adjusted on completion and based on PBJ’s working capital and other balance sheet items. PBJ’s principal activities are the establishment of palm oil plantations and operations. It is also involved in the crude vegetable oil industry. (The Edge Daily)

• Caring Pharmacy Group Bhd’s 3QFY18 net profit declined 2.3% Y.o.Y to RM5.2 mln, mainly due to higher tax. Revenue, for the quarter, however, rose 12.8% Y.o.Y to RM130.5 mln.

• For 9MFY18, cumulative net profit increased 44.7% Y.o.Y to RM12.7 mln. Revenue for the quarter climbed 11.4% Y.o.Y to RM379.8 mln. (The Edge Daily)

• LB Aluminium Bhd is acquiring a piece of industrial land together with an industrial complex in Sungai Penaga Industrial Park, Subang Jaya, Selangor, from Facade Treatment Engineering Sdn Bhd for RM25.0 mln cash. The industrial complex comprises a 2- storey office building, a 2-storey detached factory, two single-storey detached factories and a guard house. (The Edge Daily)

• Vertice Bhd has terminated a RM59.1 mln contract to provide engineering, procurement, construction and commissioning (EPCC) for an interconnecting road in Pengerang, Kota Tinggi, Johor, from Tulane Sdn Bhd. Vertice was withdrawing its letter of award effective immediately as Tulane had been terminated as the main contractor of the project by Petronas Refinery Petrochemical Corp Sdn Bhd due to its failure to provide the bank guarantee necessary for the performance bond. (The Edge Daily)

• PRG Holdings Bhd is set to venture into the luxury fashion apparel business through its 75.0%-owned subsidiary Furniweb Holdings Ltd, which is listed on the Hong Kong stock exchange. Furniweb has signed a letter of intent with Philipp Plein International AG and Plein Sport AG to record their intention to start a business collaboration, initially in Singapore, Malaysia and Thailand. (The Edge Daily)

• Maxwell International Holdings Bhd is unable to release its annual report for the financial year ended 31st December 2017 before the 30th April 2018 deadline and would endeavour to release the report no later than two months from the date. Its’ external auditors, Messrs Baker Tilly Monteiro Heng require additional time to complete the annual report and Maxwell is working closely with auditors to expedite its completion. (The Edge Daily)

• China Ouhua Winery Holdings Ltd’s external auditor, Messrs UHY Lee Seng Chan & Co has expressed a qualified opinion on the group’s financial statements for the financial year ended 31st December 2017, explaining it was unable to obtain sufficient appropriate audit evidence on the extend of recoverability of the RMB118.8 mln deposits that were used for a contract to purchase land and property in China. The deposit is about 90.0% of the total cash consideration of RMB132.0 mln which was made to Huangwu Subdistrict Office, Zhifu District, Yantai City in China, when the group entered into a contract to purchase land, buildings and ancillary facilities, including 320 KVA power distribution equipment, water supply systems, roads surrounding the factory and the enclosing wall. (The Edge Daily)  

Source: Mplus Research - 26 Apr 2018