Rangebound Trend Ahead

• The eleventh hour bargain hunting in selected index heavyweights trimmed most of the FBM KLCI intraday losses as the key index closed on a flattish note yesterday. The lower liners closed mostly higher as the FBM Small Cap and FBM Fledgling added 0.7% and 0.2% respectively, while the broader market ended mixed.

• Market breadth remains positive as advancers outnumbered decliners on a ratio of 53-to-369 stocks. Traded volumes, however, fell 1.4% with 2.73 bln shares exchanging hands.

• MISC (-17.0 sen) topped the big board decliners list, followed by Genting (-10.0 sen), KLCC (-5.0 sen), Petronas Dagangan (-4.0 sen) and IHH (-4.0 sen). Notable decliners on the broader market were Ajinomoto (48.0 sen), Panasonic (-38.0 sen) Carlsberg (-12.0 sen), Allianz (-30.0 sen) and MPI (-30.0 sen), while Kossan (- 5.0 sen) trended lower for the third straight session.

• Consumer products stocks like Heineken (+66.0 sen), Dutch Lady (+56.0 sen), and BAT (+50.0 sen) topped the broader market advancers list, while UMW Holdings and Batu Kawan added 25.0 sen and 20.0 sen respectively. Key winners on the FBM KLCI were Hong Leong Financial Group (+64.0 sen), Petronas Gas (+36.0 sen), Nestle (+30.0 sen), Sime Darby Plantations (+23.0 sen) and Astro (+18.0 sen).

• Asian benchmark indices extended their gains yesterday, taking cue from the positive developments on Wall Street overnight and helping the Nikkei (+0.3%) to chalk up another positive day. The Hang Seng Index (+0.3%) recorded its fourth straight session of gains, while the Shanghai Composite closed 0.7% higher after the Caixin Services PMI for May 2018 rose to 52.9, matching economists’ expectations. ASEAN indices, meanwhile, ended mostly higher yesterday.

• U.S. stockmarkets ended on a mixed noted as the Dow fell 0.1% after recouping most of its intraday losses after crude oil prices advanced for the first time in four days. On the broader market, the S&P 500 rose 0.1% after enduring a choppy trading session, while the Nasdaq finished 0.4% higher to close at a fresh record high level.

• European benchmark indices ended mostly lower after the Euro Currency rallied on expectation of the end of quantitative-easing programs by the European Central Bank with the FTSE falling 0.7%. The CAC declined 0.2% after erasing all its intraday gains on the final hour of the trading bell, but the DAX managed to register a 0.1% gain.

The Day Ahead

• Once again, the directionless trading pattern was the order of the day with the key index going nowhere amid the lack of new leads. At the same time, market interest was still relatively benign as many market players preferred to stay on the sidelines, awaiting for further clarity on the market’s direction.

• We think the sideway trend is likely to continue over the near term due to the dearth of leads and local institutions are likely to provide support from the continuing foreign selldown to allow the key index to build up a base around the 1,750-1,760 levels. The other support is at the 1740, while the resistances are at 1,762 and 1,770 respectively.

• Meanwhile, many broader market shares have seemingly found support after their recent weakness and some instances of bargain hunting are emerging. We think there could be continued nibbling on the lower liners amid their attractive valuations that will encourage further bargain hunting.

Company Update

• AWC Bhd has announced that it will proceed with the completion of its proposed acquisition of a 60.0% equity interest in Trackwork & Supplies Sdn Bhd for RM43.5 mln after Trackwork will reach settlement or resolution over a RM19.0 mln defect-machine claim by a customer. (The Star Online)

Comments

• The recent development could have potentially delayed AWC’s plans to acquire Trackwork by 2Q2018, although we do not expect the proposed acquisition to be dropped in the nearterm, barring any new developments. AWC has also clarified that it will not assume any liability arising from the incident.

• We maintain our BUY call on AWC with an unchanged target price of RM1.10, as we did not include the proposed Trackwork acquisition in our forecasts. 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

• TH Heavy Engineering Bhd has announced plans to undertake a kitchensinking exercise so it can start with a clean slate and exit the Practice Note 17 (PN17) status by the 1Q2019.

• The group is preparing the submission of its regularisation plan to Bursa Malaysia by 26th October 2018. Consequently, several impairments will have to be made, including the floating production storage and offloading (FPSO) units. (The Edge Daily)

• Raja Datuk Idris Raja Kamarudin has tendered his resignation from his position as Chairman of Kumpulan Perangsang Selangor Bhd (KPS), the flagship public-listed corporation of the Selangor State government. (The Star Online)

• Kerjaya Prospek Group Bhd has clinched a contract for the construction works related to a marine bridge crossing the sea linking Jalan Seri Tanjung Pinang on Penang Island to Seri Tanjung Pinang Phase 2 (STP2) Island, worth RM138.7 mln. Construction works will take approximately 27 months from 11th June this year until 10th September 2020. (The Star Online)

• Scomi Group Bhd has proposed a share placement of up to 10.0% of its total number of issued shares at a price to be fixed later to third party investors, in a bid to raise up to RM19.0 mln. The funds will be used mainly for working capital for the group, while the identities of the third party investors were undisclosed. (The Edge Daily)

• DBE Gurney Resources Bhd is planning to buy a piece of leasehold land in Kinta, Perak for RM5.4 mln, in line with its diversification into property development. The group plans to develop terrace, semi-detached and bungalow houses (landed residential) on the plot, although further details will be determined and finalised at a later stage. (The Edge Daily)
• Ekovest Bhd’s joint-venture agreement (JVA) with Samling Resources Sdn Bhd to jointly-undertake the development and upgrading of the Pan Borneo Highway in Sarawak (Phase 1 for work package contract WPC-02 (Semantan to Sg Moyan Bridge and KSR Interchanges) with a total contract value of RM2.1 bln has been terminated.

• This comes after Ekovest received a letter on 4th June 2018 from Samling Resources, informing that Lebuhraya Borneo Utara Sdn Bhd (LBU), the project delivery partner for the project, has not consented for the project to be sub-contracted to Samling-Ekovest JV Sdn Bhd. (The Edge Daily)

• AirAsia Group Bhd has refuted reports that the company and its Group Chief Executive Officer (CEO), Tan Sri Tony Fernandes is required to appear before India’s Central Bureau of Investigation (CBI) on 6th June 2018 for “questioning”.

• To recap, the Times of India (TOI) reported that the CBI had summoned Fernandes to appear before the graftbuster agency to question him regarding approval from the Foreign Investment Promotion Board to invest in India as well as his alleged efforts to get the ‘5/20’ rule of civil aviation policy changed so that AirAsia could start international operations there.

• AirAsia has assured that the company and Mr. Tony Fernandes would fully cooperate with the respective authorities in India in the latter’s investigation. (The Edge Daily)

• Daya Materials Bhd has inked a master agreement with Schlumberger in Russia for the provision of a non-explosive radical cutting torch (RCT), perforating torch cutter (PTC Puncher) and related energetic and thermite based solutions services. The contract period will be from 5th June 2018 until 31st December 2020. (The Star Online)  

Source: Mplus Research - 6 Jun 2018