Foreign Selling Still Dulling Market

• The FBM KLCI (-0.1%) slipped into the red towards the end of the trading day, weighed down by persistent foreignselling despite lingering in the positive territory for the most part of the session. The FBM Fledgling and the FBM Ace indices also ended on soft footing, but the FBM Small Cap (+0.3%) opposed the general sentiment to close higher on Monday. The broader market also logged gains, with the exception of the Construction (-0.1%), and Trading/Services (-0.3%) sectors.

• Market breadth turned positive as advancers overtook decliners marginally on a ratio of 493-to-476 stocks. Traded volumes, meanwhile, fell by 4.5% to 2.78 bln shares as the earnings season gets underway.

• Banking heavyweights dragged the keyindex lower – led by Hong Leong Financial Group (-34.0 sen), CIMB (-20.0 sen) and Hong Leong Bank (-14.0 sen), followed by Tenaga Nasional (-26.0 sen) and Telekom Malaysia (-18.0 sen). Broader market losers, meanwhile, were Cahya Mata Sarawak (-56.0 sen), Ajinomoto (-52.0 sen), Genting Plantations (-30.0 sen), Sarawak Oil Palms (-14.0 sen) and Amway (-11.0 sen).

• Meanwhile, chart-toppers were BAT (+RM1.04), Allianz Malaysia (+80.0 sen), Malaysian Pacific Industries (+44.0 sen), Carlsberg (+40.0 sen) and LPI Capital (+40.0 sen). The five blue-chip gauge winners include Nestle (+RM3.00), Public Bank (+62.0 sen), Kuala Lumpur Kepong (+42.0 sen), Petronas Gas (+8.0 sen) and Maybank (+6.0 sen).

• Key benchmark regional indices were mostly higher as investors digested the latest developments from the U.S.-China trade negotiations over the weekend. Technology and financial stocks led the gainers on the Hang Seng Index (+0.6%), while the Shanghai Composite rose 0.6% after China agreed to increased its U.S. purchases. The Nikkei (+0.3%) also ended favorably, although upside was capped by losses in steelmakers. ASEAN stockmarkets, however, closed mixed on Monday.
• U.S. stockmarkets also closed with solid gains as investors set aside trade uncertainties and focussed on the latest corporate developments and earnings releases. The Dow (+1.2%) and the S&P 500 (+0.7%) finished at their highest level highs in about two months. The Nasdaq, meanwhile, rose 0.5% at 7,394.0 points.
• Earlier, European equities mostly rallied amid receding fears of a full-blown trade war between U.S. and China following a temporary truce between the world’s two largest economies. The FTSE (+1.0%) closed at a new peak on Monday, driven by the continued weakness in the Pound which will benefit the exporters on London’s blue-chip gauge. The CAC also finished 0.4% higher, but the DAX was closed.

THE DAY AHEAD

• There remains substantive selling by foreign funds and this has nullified the positivity of the thawing of U.S-China trade relations. Despite most global indices cheering the above development, the incessant selling by foreign funds will continue to weigh on the FBM KLCI’s near term sentiment, in our view

• Consequently, we think the key index is likely to stay mostly rangebound as the continuing selldown by foreign players will likely to be supported by buying support from local funds and this could keep the key index lingering around the 1,850 level for longer. Nevertheless, the foreign selling appears to be abating and this will ease the near term selling pressure, thus allowing the 1,850 level to serve as a credible near term support. Below 1,850, there is support at the 1,843 level. The resistances, meanwhile, remain at 1,860 and 1,870 respectively.
• The mixed trend on the lower liners and broader market shares also look to continue for now as most retail players are still tentative on the direction of the market and will instead wait for the release of corporate results over the next two weeks for leads.

COMPANY UPDATE

• AWC’s 3QFY18 net profit jumped 36.3% Y.o.Y to RM6.9 mln vs. RM5.0 mln in the same period last year, boosted by higher bottomline margins and stronger revenue contribution at RM75.3 mln (+11.6% Y.o.Y), from RM67.4 mln in 3QFY17.

• YTD net profit also gained 8.2% Y.o.Y to RM17.0 mln, from RM15.7 mln in the previous corresponding period, despite a marginal drop in revenue TO RM209.8 mln (-0.2% Y.o.Y) compared to RM210.2 mln last year. The higher cumulative net profit mainly resulted from stronger margins, coupled with lower tax expenses.

• The reported net profit and revenue, however, were below our forecast, accounting to only 69.4% and 64.6% of our previous net profit and revenue estimates of RM24.5 mln and RM324.6 mln respectively. The deviation was mainly due to slower-than-anticipated progress billings, hampered by project delays spilled over from previous quarters.

Comments

• As the reported earnings were below our expectations, we adjust our full year FY18 estimated net profit and revenue downwards to RM21.0 mln (-14.3%) and RM259.4 mln (-20.1%) to reflect slower revenue recognition, while tweaking our depreciation and net interest assumptions slightly. Further, we keep our FY19 revenue unchanged barring further updates on project progress, although net profit was adjusted higher to RM22.8 mln (+4.6%) on lower depreciation costs.

• Consequently, we maintain our BUY call on AWC with a higher target price of RM1.10 (from RM1.05), due to slightly better margins. Our target price is arrived by ascribing an unchanged target PER of 13.0x to AWC's FY19 EPS of 8.5 sen and also remains at a discount to AWC’s nearest competitor, UEM Edgenta Bhd due to the former’s smaller market capitalisation.

COMPANY BRIEF

• Petronas Chemicals Group Bhd’s 1Q2018 net profit fell 17.7% Y.o.Y to RM1.07 bln due mainly to the strengthening of the Ringgit against the U.S. Dollar, coupled an exchange loss on its shareholder loans pursuant to the divestment of a 50.0% equity interest in a subsidiary. Revenue for the quarter, however, rose 5.4% Y.o.Y to RM4.95 bln. (The Star Online)

• Star Media Group Bhd will cease its printing operations at its Bayan Lepas facility in Penang effective September 2018 as part of its ongoing costrationalisation exercise. The decision is also part of the company’s transformation drive towards digitalisation and making Star Media Group more agile and lean. The move is expected to bring about a reduction in its overall operating cost and as a result, about 100 employees in its Penang printing operations are expected to be retrenched. (The Star Online)

• Magnum Bhd’s 1Q2018 net profit jumped 79.7% Y.o.Y to RM54.9 mln on higher gaming revenue and lower prizes payout ratio. Revenue for the quarter grew 2.2% Y.o.Y to RM712.4 mln. A first interim single tier dividend of 4.0 sen per share, payable on 29th June 2018, was declared. (The Edge Daily)

• Media Prima Bhd has announced that Tan Sri Ismee Ismail has resigned as its Independent, Non-Executive Group Chairman to focus on other commitments. Following Ismee's departure, Media Prima’s Independent, Non-Executive Director, Datuk Mohd Nasir Ahmad will temporarily chair the media conglomerate. (The Edge Daily)

• Kenanga Investment Bank Bhd has gotten the greenlight from Bank Negara Malaysia to commence negotiation to buy out Inter-Pacific Securities Sdn Bhd’s stockbroking business. The Central Bank states no objection for it to commence negotiations with InterPacific Securities on the proposed acquisition of the latter’s assets, liabilities and contractual arrangements. It, however, did not detail the potential value of the acquisition, but said it will be financed by ways of shares and cash. (The Edge Daily)

• British American Tobacco (M) Bhd’s 1Q2018 net profit fell 16.1% Y.o.Y to RM95.9 mln on waning legal tobacco volume. Revenue for the quarter declined 14.8% Y.o.Y to RM637.7 mln. (The Edge Daily)

• Berjaya Assets Bhd’s 3QFY18 net profit sank 90.8% Y.o.Y to RM16.6 mln due to
• the reversal for taxes in dispute amounting to RM156.5 mln accounted for Berjaya Times Square Sdn Bhd. Revenue for the quarter declined 12.2% Y.o.Y to RM76.6 mln.
• For 9MFY18, cumulative net loss stood at RM2.8 mln, as opposed to net profit of RM25.6 mln recorded in the previous corresponding period. Revenue for the period dropped 3.6% Y.o.Y to RM264.2 mln. (The Edge Daily)
• Hengyuan Refining Co Bhd’s 1Q2018 net profit fell 69.0% Y.o.Y to RM86.8 mln as margins fell due to a lower crack spread for motor gas. Revenue for the quarter, however, increased 4.4% Y.o.Y to RM3.06 bln. (The Edge Daily)

Source: Mplus Research - 22 May 2018