Searching For A Bottom

• The FBM KLCI (-1.6%) finished lower for the fourth consecutive session, intandem with the bearish sentiments in the offshore markets, coupled with increasing debt risks associated with scandal-ridden state fund 1MDB. All the lower liners were splashed in red, alongside most of the broader market constituents.
   
• Market breadth was negative as losers continued to gain the upper hand with 752 stocks against 235 decliners. Traded volumes fell further by 6.5% to 2.87 bln shares on extended selling-pressure in the equities market.

• Banking stocks like Public Bank (-74.0 sen), Maybank (-42.0 sen) and CIMB (- 17.0) led the key-index lower, followed by Nestle (-RM1.80) and Tenaga Nasional (- 18.0 sen). Other stocks on the losing side were BAT (-RM1.84), Ajinomoto (-90.0 sen), Allianz (-44.0 sen), Petron Malaysia (-35.0 sen). Lafarge Malaysia also retreated after the building materials supplier net loss widened in 1Q2018 amid a supply glut in the cement industry.

• Lower liners which rallied on Thursday, meanwhile, include Shangri-La Hotels (+31.0 sen), Kluang Rubber (+20.0 sen), Rapid Synergy (+13.0 sen), Vitrox (+13.0 sen) and Lotte Chemical Titan (+12.0 sen). Key-index chart-toppers were Petronas Gas (+16.0 sen), Hong Leong Bank (+10.0 sen), Astro (+7.0 sen), Hap Seng Consolidated (+3.0 sen) and Maxis (+3.0 sen).

• Key Asian benchmark equities remained southbound, aggravated by the escalating global trade uncertainties as Washington considers slapping import tariffs on automakers. The Nikkei (-1.1%) tanked by more than 250 points, with tenof-eleven sectors in the red following the strength in the Yen as investors flee to safe-haven assets. The Shanghai Composite also tanked 0.5%, although the Hong Kong’s Hang Seng Index (+0.3%) bucked the region’s weak sentiment to close higher. ASEAN indices, meanwhile, finished mixed on Thursday’s closing bell.

• Wall Street closed on a downward bias, amid heightened geopolitical risks. The Dow fell 0.3%, weighed down by Exxon Mobil (-2.3%), in-tandem with the losses in energy shares after crude oil prices extended its losses for the third straight session. The S&P 500 (-0.2%) followed suit, while the Nasdaq flatlined.

• European equities finished sharply lower on a knee-jerk reaction to President Donald Trump’s surprise decision to cancel the summit meeting scheduled with North Korea. The FTSE (-0.9%) booked-in losses, weighed down by a stronger Pound following better-thanexpected retail sales data. The DAX and the CAC also fell 0.9% and 0.3% respectively – led by the weakness in auto stocks on fears of higher U.S. import tariffs on vehicles.

The Day Ahead

• Although the local stockmarket is already oversold, there appears to be little reprieve as investor sentiments are still weak, affected by the growing uncertainties over the country’s fiscal position following the revelation of higher debts as well as swirling 1MDB issue. At the same time, global equities are also looking precarious amid the rise in geopolitical issues and further threats to free trade as the U.S. considers tariffs on imported cars.

• Given the still cautious market environment, we think the key index will endure further selling pressure and with foreign funds still trimming their shareholding, the key index could head towards the immediate support of 1,770. Thereafter, the supports are at 1,760 and 1,750 respectively. The resistances, meanwhile, are at 1,780 and 1,800 respectively.

• The lower lines and broader market shares are also looking frail with little buying support. The spate of corporate results reported recently have also been less-than-encouraging and this will further dampen the confidence of retail players.

Company Update

• Engtex Group Bhd’s 1Q2018 net profit fell 44.8% Y.o.Y to RM9.9 mln, as the previous corresponding period’s earnings included a one-time gain of RM7.1 mln from the sale of a piece of vacant industrial land in Johor. Revenue for the quarter, however, gained 17.5% Y.o.Y to RM298.2 mln.

• The reported earnings fell short of our expectations, amounting to only 15.9% of our estimated net profit of RM62.1 mln. The reported revenue, however, came within expectations, accounting to 25.7% our full year estimated revenue of RM1.16 bln. The difference in its net profit was due to lower margins recorded in the manufacturing segment, coupled with the escalation of construction cost in its property development project - Amanja, Kepong.

Comments

• With the reported earnings coming below our forecast, we trimmed earnings estimates by 22.6% and 16.2% to RM48.1 mln and RM54.6 mln for 2018 and 2019 respectively to account for the lower margins from the manufacturing segment in view of the stiffer price competition and higher raw material cost.

• We also think the higher cost incurred in the Amanja, Kepong property development project. Would also affect its earnings. Consequently, we downgrade Engtex to HOLD (from BUY) recommendation with a lower target price of RM1.15 (from RM1.30).

• Our target price was derived from ascribing a unchanged target PER of 8.0x to our revised 2018 earnings forecast of its manufacturing and wholesale and distribution businesses, in line with its historical PER. Its property development segment’s valuation remains unchanged at 0.6x its BV due to its relatively small-scale property development projects while its hospitality segment earnings is pegged to lower PER of 6.0x to its 2018 earnings due its small contribution to the group.

Company Update

• Suria Capital Holdings Bhd’s 1Q2018 net profit grew 9.2% Y.o.Y to RM14.3 mln, lifted by the higher topline growth coupled with improved gross margins of 25.1% vs. 24.8% in the previous corresponding quarter. Revenue for the quarter jumped 116.8% Y.o.Y to RM127.3 mln. The reported results came in within our expectations, making up 26.0% of our estimated net profit estimate of RM54.6 mln.

• The reported revenue, however, came above our expectations, amounting to 33.3% of our full-year forecast of RM382.1 mln. The difference in revenue was due to higher contribution from the port operations segment, vis-à-vis our estimates.

Comments

• As the reported earnings came within our expectations, we leave our earnings forecast unchanged and we maintain our BUY recommendation on Suria 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.

Company Update

• Chin Well Holdings Bhd’s 3QFY18 net profit plunged 41.7% Y.o.Y to RM8.6 mln, from RM14.7 mln previously, mainly owing to increased raw material cost, softer export sales and higher administrative expenses. Revenue, on the other hand, grew marginally to RM160.5 mln (+1.5% Y.o.Y), boosted by stronger performance from the wire rod division.

• Cumulative 9MFY18 earnings also fell 9.2% Y.o.Y to RM37.9 mln, from RM41.7 mln, dragged down by weaker margins, in-tandem with rising raw materials prices, higher unrealised forex losses and higher administrative expenses.

• The group’s earnings came in below our expectations, accounting to only 59.9% of our full year estimated net profit of RM63.2 mln, although revenue was broadly in-line with our forecast at about 71.9% of full-year revenue of RM613.7 mln. The difference was mainly attributed to lower-thanexpected fasteners sales, hit by the strengthening of Ringgit and sub-par EBITDA margins from the wire segment, on the back of higher raw materials costs.

Comments

• In view of the latest results, we adjust our FY18 earnings and revenue forecast lower by 20.0%/4.2% to RM50.6 mln and RM588.0 mln respectively. Meanwhile, FY19 net profit and revenue was also reduced by 4.8% and 2.0% to RM61.6 mln and RM664.1 mln respectively. The revision was driven by lower fasteners revenue after we lowered our forex assumptions amid the prevailing uncertainty in the Malaysian fiscal landscape and rising U.S. interest rates as well as inflated input costs.

• However, we maintain our BUY recommendation on Chin Well but with a lower target price of RM1.85 (from RM1.90 previously), in-tandem with the revised earnings. Our target price is arrived by ascribing an unchanged target PER of 9.0x to its FY19 EPS of 20.6 sen.

• The target PER is at a small premium to PER of its closest peer, Tong Her Resources Bhd premised on Chin Well’s higher margins and the positive growth outlook in the fasteners landscape in Europe.

Company Update

• HIL Industries Bhd’s 1Q2018 net profit more than doubled to RM5.4 mln, mainly boosted by a one-off gain following the completion of the acquisition a new subsidiary. Revenue, however, fell marginally by 1.4% Y.o.Y to RM20.6 mln, from RM20.9 mln in 1Q2017.

Comments

• HIL’s 1Q2018 net profit and revenue accounted for 39.6% and 17.8% of our full-year forecast. The reported earnings deviated from our expectations and was mainly propped up by the one-off gain from the acquisition of a subsidiary, while revenue was below expectations owing to lower progress billing from HIL’s property segment. Stripping out the one-off gain, the normalised new profit would have plunged significantly to just RM78,000, dragged down by a significant loss from its Chinese unit due to unfavorable product mix.

• Despite the soft results, we keep our earnings forecast unchanged for now, pending further information from the company. However, we downgrade our call on HIL to a HOLD (from a Buy) with a lower target price of RM0.77 (from RM0.92). Our target price is premised on a sum-of-parts (SOP) approach, ascribing to a lower target PER of 9.0x (from 11.0x) and a discount of 40% (from 25%) to our revalued net asset value (RNAV) estimate of HIL’s property unit. The revision was mainly due to persistently low utilisation rate to its manufacturing business and depressed property market.

COMPANY BRIEF

• Media Prima Bhd’s 1Q2018 net loss narrowed to RM21.8 mln, from RM38.5 mln in the previous corresponding quarter due to higher revenue from digital advertising, content and commerce. Revenue for the quarter rose 3.1% Y.o.Y to RM280.7 mln. (The Star Online)

• Hock Seng Lee Bhd’s (HSL) 1Q2018 net profit added 23.4% Y.o.Y to RM19.8 mln from the execution of its historical high orderbook of RM3.00 bln. Revenue for the quarter increased 38.8% Y.o.Y to RM131.8 mln. (The Star Online)

• UOA Development Bhd’s 1Q2018 net profit fell 34.1% Y.o.Y to RM32.3 mln on higher operational cost. Revenue for the quarter, however, rose 11.3% Y.o.Y to RM172.0 mln. (The Edge Daily)

• Ta Ann Holdings Bhd’s 1Q2018 net profit dipped 88.4% Y.o.Y to RM4.2 mln, mainly on lower sales volume of timber and palm oil products as well as lower palm oil price. Revenue for the quarter fell 29.7% Y.o.Y to RM214.9 mln. (The Edge Daily)

• Lii Hen Industries Bhd’s 1Q2018 net profit declined 63.3% Y.o.Y to RM8.1 mln, affected by higher costs and unfavourable foreign exchange rates. Revenue for the quarter, however, rose 12.0% Y.o.Y to RM193.8 mln. A first single-tier dividend of 2.5 sen per share, payable on 29th June 2018, was declared. (The Edge Daily)

• AirAsia Bhd's 1Q2018 net profit jumped 87.0% Y.o.Y to RM1.09 bln on the back of increase in passengers carried and a RM350.3 mln gain from the disposal of subsidiary, Ground Team Red Holdings Sdn Bhd. Revenue for the quarter rose 14.8% Y.o.Y to RM2.56 bln from RM2.23 bln. An interim dividend of 12.0 sen per share, payable on 13th July 2018, was declared. (The Edge Daily)

• Ajinomoto (Malaysia) Bhd's 4QFY18 net profit slumped 90.1% Y.o.Y to RM14.7 mln as 4QFY17’s earnings included a disposal gain and compensation from the government's compulsory acquisition of its land. Revenue for the quarter, however, improved marginally by 0.1% Y.o.Y to RM115.1 mln.

• For FY18, cumulative net profit declined 70.0% Y.o.Y to RM56.3 mln. Revenue for the year, however, climbed 3.9% Y.o.Y to RM419.9 mln. (The Edge Daily)

• WCE Holdings Bhd’s 4QFY18 net loss stood at RM12.2 mln vs. a net profit of RM12.1 mln a year ago, mainly due to a RM20.4 mln impairment on long outstanding amounts owed by a former associate. Revenue for the quarter, however, rose 18.2% Y.o.Y to RM337.5 mln.

• For FY18, cumulative net profit fell 61.1% Y.o.Y to RM13.7 mln. Revenue for the year, however, rose 1.0% Y.o.Y to RM880.6 mln. (The Edge Daily)

• Sime Darby Property Bhd’s 3QFY18 net profit surged 18.1x Y.o.Y to RM33.7 mln on lower provisions as well as a gain on disposal on investment properties amounting to RM9.9 mln. Revenue for quarter, however, fell 6.0% Y.o.Y to RM550.7 mln.

• For 9MFY18, cumulative net profit jumped 100.2% Y.o.Y to RM593.4 mln. Revenue for the period added 17.5% Y.o.Y to RM1.69 bln. (The Edge Daily)

• Genting Bhd's 1Q2018 net profit fell 9.8% Y.o.Y to RM602.7 mln after the previous corresponding period included a gain of RM302.2 mln from the disposal of Genting Singapore PLC's (GENS) 50.0% stake in its associate, Landing Jeju Development Co Ltd, as well as a gain of RM85.8 mln on disposal of available-for-sale financial assets. Revenue for the quarter, however, rose 10.1% Y.o.Y to RM5.25 bln. (The Edge Daily)  

Source: Mplus Research - 25 May 2018