Recovery To Extend

• The FBM KLCI (+0.9%) extended its gains last Friday, lifted by further bargain hunting activities in selected index heavyweights. Still, the sharp losses over the past mid-week sent the key index to extend its weekly losses, falling 2.3% W.o.W. The lower liners – FBM Small Cap (+0.7%), FBM Fledgling (+0.6%) and FBM ACE (+1.0%) also all advanced, while the consumer products (-0.3%) and plantation (-0.9%) sectors underperformed their peers.

• Market breadth stayed positive as advancers overcame decliners on a ratio of 3-to-2 stocks. Traded volumes, however, fell 37.5% to 2.88 bln share, normalising from the previous session’s sharp spike due to fund managers’ portfolio reshuffling.

• Key winners on the local bourse were Maybank (+38.0 sen), MISC (+32.0 sen), CIMB (+20.0 sen), Petronas Gas (+14.0 sen) and Public Bank (+14.0 sen). Significant advancers on the broader market include Ajinomoto (+60.0 sen), BAT (+58.0 sen), Heineken (+52.0 sen) and Allianz (+48.0 sen). Malaysia Airport Holdings added 22.0 sen on news of its inclusion into the FBM KLCI top 30 constituents list, starting 18th June2018.

• On the flipside, consumer products giants like Fraser & Neave (-RM1.22), Dutch Lady (-30.0 sen) and Padini (-24.0 sen) fell, while KESM Industries and United UliCorporation slipped 62.0 sen and 19.0 sen respectively. Amongst the biggest decliners on the key index were Nestle (- RM1.10), Hong Leong Financial Group (- 34.0 sen), Sime Darby Plantations (-19.0 sen), Hong Leong Bank (-18.0 sen) and Press Metal (-14.0 sen).

• Asian benchmark indices ended mostly lower last Friday as both the Nikkei and Shanghai Composite fell 0.1% and 0.7% respectively amid fears over the U.S.’ tariff imposition. The Hang Seng Index, however, managed to chalk in 0.1% gain after enduring a choppy trading session. ASEAN indices, meanwhile, closed mixed last Friday.

• U.S. stockmarkets continue to trend higher last Friday as the Dow gapped up and subsequently climbed 0.9%, boosted by the strong jobs data with 223,000 new jobs created in May 2018, whilst unemployment rate in the same month fell to 3.8% – the lowest level in 18- months. On the broader market, the S&P 500 rose 1.1%, while the Nasdaq jumped 1.5% higher.

• Earlier, European benchmark indices – the FTSE (+0.3%), CAC (+1.2%) and DAX (+1.0%), all advanced after Italy’s Five Star Movement and the League made a deal to form a coalition government led by Giuseppe Conte. Notable advancers were Italian banks like Banco BPM SpA (+8.5%) and Banca SpA (+7.9%).

The Day Ahead

• The key index bucked the weakness expectations as the recovery gained ground last Friday instead to cast aside the U.S.’ threat of tariffs on its neighbours, the E.U. and China. It appears that bouts of portfolio reshuffling exercises and bargain hunting activities were the catalysts for Friday’s gains.

• The past two session’s gains are providing room for further near term upsides as the near term outlook is looking healthier, albeit we think the buying could still be selective after many of the heavyweights have rallied last week. The easing political impasse in Italy and Wall Street’s surge last Friday will provide further impetus for the key index’s recovery. On the upside, the market could head towards the 1,760 levels, before making a pass at the 1,770 level. The main support is located at the 1,750 level.

• The lower liners and broader market shares are also seeing a revival as their downtrend appears to be fading and a base may have been found. Therefore, we think there will be sustained recovery over the near term amid bargain hunting activities on some of the beaten down industry leaders.

Company Update

• Econpile Holdings Bhd has won a RM20.5 mln piling and substructure contract from M/S KL Gateway Sdn Bhd. The job is for a residential block on Phase 2 of the KL Gateway mixed development comprising a 41-storey service apartment and a 5- storey basement at Jalan Kerinchi, Kuala Lumpur. The overall duration of the contract is about 18 months. (The Star Online)

Comments

• Together with the latest award, Econpile have secured six major contracts totalling RM488.3 mln in FY18 – representing 97.7% of our orderbook replenishment rate of RM500.0 mln for FY18. The group's current order book stands at approximately RM1.10 bln, which will provide earnings visibility over the next three years.

• With the contract falling within our targeted orderbook replenishment rate, we leave our earnings forecast unchanged. We maintain our BUY recommendation on Econpile with an unchanged target price at RM0.90 by ascribing an unchanged target PER of 13.0x to its FY19 EPS of 6.8 sen. The ascribed target PER is in line with its peers with similar market capitalisation.

COMPANY BRIEF

• Pahang State Development Corp’s (PKNP) unit, Pasdec Holdings Bhd has announced that PKNP has yet to receive approval from the Finance Ministry for the statutory body to subscribe for its entitlement in Pasdec's rights issue with warrants.

• Consequently, the group has received an irrevocable undertaking from Jasa Imani Sdn Bhd (JISB) to subscribe for additional 42.6 mln rights shares with 42.6 mln warrants, representing the entire entitlement of PKNP in the rights issue. Further, JISB has assured that it has sufficient financial resources to subscribe to the additional undertakings.

• If JISB subscribes for the additional undertakings, its shareholding in Pasdec after the rights issue exercise will be about 38.9% vs. PKNP's share of 26.6%, and JISB would be required to undertake a mandatory offer if its shareholdings exceeds the 33.0% threshold. (The Edge Daily)

• MyEG Services Bhd‘s tenure as one of the three contracted vendors to the Immigration Department tasked with undertaking the foreign workers Rehiring Programme will be terminated by end of June.

• The other two vendors are Iman Resources Sdn Bhd and Bukti Megah Sdn Bhd. To recap, the rehiring programme was initially launched on 15th February 2016, as part of the government's efforts to crack down on undocumented migrant workers. (The Star Online)
• Time dotCom Bhd hopes that the government will give it the opportunity to expand into the landed property segment of the fixed-line operating industry. Its group Chief Executive Officer, Afzal Abdul Rahim said that the group is keen to expand its network services from enterprises and business to include landed properties. However, it currently does not have access to poles to provide connectivity to landed properties. (The Edge Daily)

• Tune Protect Group Bhd expects to grow its gross written premium by double digits in 2018, underpinned by its global travel insurance and takaful business. Its growth strategy moving forward will be based on three pillars — product differentiation and innovation, widening distribution channels to expand its reach and delivering exceptional customer experience.

• Meanwhile, for the global travel insurance business, the group is enhancing the dynamic pricing initiatives as well as offering more creative product bundling within the group. (The Edge Daily)

• Datuk Seri Robin Tan Yeong Ching has resigned from his his position as CEO of Berjaya Sports Toto Bhd (BToto) in order to focus on his role as CEO of parent company Berjaya Corp Bhd. Consequently, he will be replaced by former Executive Director and Robin’s sister, Nerine Tan Sheik Ping, effective 1st June 2018. Ms. Nerine is also an executive director of Berjaya Land Bhd and Berjaya Corp. (The Star Online)

• Tropicana Corp Bhd's Independent and Non-executive Chairman, Tan Sri Othman Abd Razak has tendered his resignation after a little less than 10 months on the job, due to personal commitments. Tan Sri Othman first joined the property developer as an Independent Non-executive Director on 18th April 2016 before being designated as the Chairman of the group on 21st August, 2017. (The Edge Daily)

• AmanahRaya Real Estate Investment Trust's (REIT) Independent and Nonexecutive Chairman, Datuk Seri Ikmal Hisham Abdul Aziz has resigned after holding the position for about one year and four months, citing personal commitments. (The Edge Daily)  

Source: Mplus Research - 4 Jun 2018