Moving Ahead

• Although the key index opened lower at the start of the trading bell, strong buying interest on most of the key index components lifted the FBM KLCI (+1.3%) sharply higher yesterday. The lower liners – the FBM Small Cap (+1.9%), FBM Fledgling (+1.2%) and FBM ACE (+2.9%) also rallied, while the Plantations and REITS sector underperformed its peers, falling 0.1% each.

• Market breadth remains positive as advancers trounced decliners on a ratio of 716-to-267 stocks. Traded volumes rose 28.4% with 3.50 bln shares amid the calmer market sentiment.

• On the FBM KLCI, key winners include Public Bank (+98.0 sen), Hong Leong Financial Group (+62.0 sen), Petronas Gas (+32.0 sen) and Axiata (+23.0 sen). Astro jumped 23.0 sen on speculation of its privatisation plan. Significant advancers on the broader market were BAT (+80.0 sen), Heng Yuan (+49.0 sen), Lafarge Malaysia (+32.0 sen) and Petron Malaysia (+30.0 sen). Cahya Mata Sarawak added 13.0 sen, trending higher for the fifth straight day.

• In contrast, consumer product stocks like Dutch Lady (-50.0 sen), Ajinomoto (-44.0 sen), Carlsberg (-22.0 sen) and Heineken (-22.0 sen) topped the broader market decliners list, while SAM Engineering & Equipment slipped 18.0 sen. Meanwhile, Sime Darby Plantation (-11.0 sen), Press Metal (-7.0 sen), Maybank (-6.0 sen), Genting (-5.0 sen) and IHH (-33.0 sen) were the biggest losers on the local bourse.

• Asian benchmark indices continue to trend higher yesterday as the Nikkei (+0.5%) advanced for the third straight session to close at a two-week high, led by gains in technology shares. The Hang Seng Index (+0.5%) was powered higher for the fifth consecutive session, while the Shanghai Composite (+0.03%) was nudged higher to close in the positive territory on the final trading hour. ASEAN indices, meanwhile, ended mostly higher yesterday.

• U.S. stockmarkets rallied overnight as concerns over trade war ebbed after China reportedly plan to buy more American products. The Dow jumped 1.4% higher to close above the 25,000 psychological level, while the S&P 500 added 0.9% with 11 of the 12 major sectors advancing. The Nasdaq (+0.7%) closed at a fresh record high level after trending higher for the fifth straight session.

• European benchmark indices closed mostly higher after recovering from their intraday losses as the FTSE and DAX climbed 0.3% each, taking cue from the gains on Wall Street and Asia stockmarkets. The CAC, however, slipped 0.1% after erasing all its intraday gains, dragged down by losses in utilities, consumer and healthcare sector.

The Day Ahead

• Bargain hunting activities by local institutions helped to shore up the market yesterday as well as to counter the sustained selldown by foreign funds. At the same time, there is also a measure of calmness returning to the Malaysian stockmarket following its rout over the past month.

• With calmness gradually returning, coupled with the positivity in global equities, we think there is room for further near term upsides. Despite the lack of fresh leads, we see bargain hunting activities sustaining over the near term that will help to provide the lift for the FBM KLCI to retest the 1,780 resistance in due course. However, we also think there could be bouts of profit taking after yesterday’s hefty gains and this could limit the upsides to the 1,780 level. Beyond that, the other notable resistance is at 1,800 points level, while the supports are at 1,760 and 1,750 respectively.

• Meanwhile, bargain hunting activities are also likely to escalate among the lower liners and broader market shares amid their strong value proposition following the selldown over the past few months. Although the recent spate of corporate results was still feeble, many lower liners’ valuations are attractive and this will continue to prompt bargain hunting over the near term as investors’ position their portfolio for the longer term recovery.

Company Update

• Kimlun Corporation Bhd (Kimlun) has bagged a contract worth S$27.0 mln (RM80.4 mln) from M+W Singapore Pte Ltd for the supply and delivery of pre-cast concrete building components. The supply and delivery of the components will be completed by the end of December 2018.

• Separately, Kimlun has accepted the award of a RM144.1 mln construction contract from Focus Ace Construction Sdn Bhd to design and build roads and interchange in Johor Bahru. The construction work is expected to be completed by end of October 2020. (News Straits Times)

Comments

• With both the contracts falling within our orderbook assumption of RM200.0 mln in the construction segment and RM100.0 mln in the manufacturing segment, we leave our earnings unchanged. Given its share price has fallen 32.4% YTD, we think that valuations are attractive at current juncture as the company is trading at PERs of 7.4x and 7.0x for 2018 and 2019 respectively. Hence, we upgrade Kimlun to BUY (from Hold) with an unchanged target price of RM1.85 following the award of the above contracts that will ensure sustained earnings over the next two years.

• Our target price is derived from ascribing an unchanged target PER of 9.0x to its 2018 fully diluted construction earnings and PER of 6.0x (unchanged) to its fully diluted manufacturing earnings, while its property development segment’s valuation remains unchanged at 0.6x its BV due to its relatively small-scale development projects.

Company Brief

• WCT Holdings Bhd's proposed listing of its real estate investment trust (REIT) may be pushed to 2019 pending the outcome of a legal dispute between WCT's indirect wholly-owned subsidiary Gemilang Waras Sdn Bhd and Aeon Co (M) Bhd. The dispute was in relation to the lease renewal for Aeon Mall Bukit Tinggi, Selangor.

• Aeon was seeking, among others, an injunction to prevent Gemilang Waras from taking any action to terminate the lease agreement dated 23th November 2007 pending the court's decision. The REIT listing was initially scheduled at the end of 2017. (The Edge Daily)

• Dagang NeXchange Bhd (DNeX) is sanguine about its prospects under the new government that has pledged to be business-friendly and it will also continue to expand its business via planned initiatives as well as the exploration of new opportunities. The group aims to achieve a 20.0% and 30.0% growth in its 2018 earnings and revenue, driven by improved performance from its two core business divisions.

• The group is also eyeing a tender that it expects the government to call for — implementation of the Road Charge Vehicle Entry Permit (RCVEP) project for the Malaysia-Thai border. (The Star Online)

• AE Multi Holdings Bhd has proposed to sell off a property in Sungai Petani, Kedah, comprising a single-storey office, warehouse, factory building and ancillary building for RM10.0 mln. The funds will be used to pare its outstanding bank debts of RM2.0 mln, upgrade its treatment plant in Thailand for RM2.0 mln, while the remainder will be used to finance its working capital.

• The disposal is expected to reap an estimated gain on disposal of RM73,000 and will be completed by November 2018. (The Edge Daily)

• Astro Malaysia Holdings Bhd’s 1QFY18 net profit fell 10.8% Y.o.Y to RM174.7 mln, from RM195.8 mln last year, owing to higher net finance costs. Revenue, meanwhile, dropped slightly by 1.1% Y.o.Y to RM1.31 bln vs. RM1.33 bln previously. The group declared a first interim single-tier dividend of 2.5 sen, payable on 6th July 2018.

• Further, the group has also clarified that it has yet to receive confirmation of any privatisation proposal by its controlling shareholder tycoon Ananda Krishnan, following news reports of potential privatisation by the latter earlier. (The Edge Daily)

• Chin Hin Group Bhd is planning to sell 17 units of three-storey shop offices to Chin Hin Building Materials Supply (JB) Sdn Bhd (CHBMS) for RM21.2 mln in a related party transaction. The properties, which are located Rawang and Alor Setar, are not being used for any business operations. (The Edge Daily)

• Telekom Malaysia Bhd’s Managing Director and Group Chief Executive Officer (CEO), Datuk Sri Mohammed Shazalli Ramly has resigned from his positions effective immediately. He will be temporarily replaced by Deputy Group CEO, Datuk Bazlan Osman as the Acting Group CEO. (The Star Online)

• JAKS Resources Bhd has proposed another cash call to raise up to RM69.5 mln from a proposed rights issue of warrants to expedite the construction progress of its power plant project in Vietnam, for partial repayment of bank borrowings and to fund preliminary expenses relating to exploring new renewable energy projects in Southeast Asia.

• The proposed rights issue of warrants involves the issuance of up to 278.2 mln warrants on the basis of one warrant-for-every two existing JAKS shares held on an entitlement date to be determined later. The proposed rights issue of warrants is slated to be completed in 2H2018. (The Edge Daily)  

Source: Mplus Research - 7 Jun 2018