Market Oversold, Waiting For A Rebound

• The FBM KLCI (-0.1%) sank into the negative territory, dragged down by weakness in selected banking and telco heavyweights yesterday. The lower liners – the FBM Small Cap (-0.7%), the FBM Fledgling (-0.3%) and the FBM Ace (- 0.4%) all extended their losses, while the Industrial Products sector (+0.1%) outperformed the negative broader market.

• Market breadth stayed negative as decliners outpaced advancers on a ratio of 547-to-264 stocks. Traded volumes fell 8.0% to 1.88 bln shares amid the negative market sentiment.

• Banking and telco heavyweights like RHB Bank (-17.0 sen), Digi (-12.0 sen), Maxis (- 8.0 sen) and Maybank (-8.0 sen) topped the FBM KLCI decliners list, while PPB Group slipped 12.0 sen. Notable decliners on the broader market include Ajinomoto (-50.0 sen), Carlsberg (-32.0 sen), Petron Malaysia (-26.0 sen) and MPI (-22.0 sen) . NTPM Holdings fell 5.0 sen after delivering lacklustre quarterly earnings.

• Consumer products stocks like Dutch Lady (+90.0 sen), BAT (+34.0 sen) and QL Resources (+5.0 sen) rose, while I.Capital and DRB-Hicom closed 10.0 sen and 9.0 sen higher respectively. Among the biggest advancers on the key index were Nestle (+40.0 sen), Public Bank (+18.0 sen), Petronas Gas (+16.0 sen), Press Metal (+7.0 sen) and Hartalega (+6.0 sen).

• Tracking the weakness on Wall Street overnight, Asia benchmark indices ended mostly lower as the Hang Seng Index fell 0.3% on lingering concerns over U.S.- China trade spat. The Shanghai Composite (-0.5%) entered into the bear market territory on growing pessimism as companies are on the edge of margin calls and bond defaults. The Nikkei, however, closed 0.02% higher after recovering all its intraday losses. ASEAN stockmarkets, meanwhile, closed mostly lower yesterday.

• U.S stockmarkets rebounded overnight as the Dow climbed 0.1%, lifted by the rally in energy shares after crude oil prices soared on Iran crude oil sanctions. On the broader market, the S&P 500 gained 0.2%, led by the energy sector (+1.4%), while the Nasdaq finished 0.4% higher.

• Earlier, European benchmark indices ended on a mixed note as the CAC and DAX fell 0.1% and 0.3% respectively after erasing all their intraday gains on lingering concerns over the trade spat. The FTSE, however, rose 0.4% lifted by gains in mining shares like BHP Billiton (+2.5%), Rio Tinto (+1.6%) and Anglo American (+1.0%).

The Day Ahead

• Bursa Malaysia’s streak of losses is continuing amid the incessant selldown by foreign players and the corresponding lack of buying interest to provide some support to the equity market. This has also left the key index severely oversold. However, a meaningful rebound has yet to materialise, albeit there were some attempts over the past few days to mount the recovery, only for more end-of-day selling and profit taking to leave the recovery attempts undone.

• Judging on the present market condition, there downside risk is still prevalent with the foreign selling showing few signs of abating. At the same time, the buying interest is still broadly tentative, thus providing little room for a recovery. Nevertheless, we think the oversold conditions could now prompt some bargain hunting activities that could help Malaysian stocks to mount a rebound. However, we think any recovery will be mild for now as the general market environment is still cautious. On the upside, the resistances are at 1,680 and 1,690, while the supports are at 1,670 and 1,665 points respectively.

• The broader market shares are also lingering in the oversold region and a technical rebound is due. Their recovery, however, may be more difficult to come by due to the still cautious environment. Therefore, the broader market conditions are expected to stay mixed for now as gains are likely to be met by quick profit taking activities.

COMPANY BRIEF

• T7 Global Bhd has announced that it will continue to participate in the controversial East Coast Railway Line (ECRL) project even at a substantially lower cost, as long as there are reasonable profits to be made from the project. This comes after the Prime Minister Tun Dr Mahathir Mohamad has indicated the potential resumption of the ECRL project on the basis of a price review and more favourable terms via renegotiations.

• Currently, the group is awaiting for the government’s decision on the project, as it is being reviewed, although the group is positive pricing will be more effective, going forward. (The Star Online)

• MSM Malaysia Holdings Bhd (MSM) is planning to penetrate the African and Chinese markets to make full use of the new production capacity that will come on stream once its new sugar refinery in Tanjung Langsat, Johor, commences operations next month.

• It is studying options on how to enter the two markets without putting pressure on MSM’s balance sheet as the group is not financially strong at the current juncture. Possible options currently include a partnership or a direct export. (The Edge Daily)

• Selangor Properties Bhd’s 2QFY18 net profit narrowed by 22.9% Y.o.Y to RM6.6 mln, from RM8.6 mln last year, mainly due to fair value loss on its investments overseas, although losses were capped by a narrower unrealised forex loss. Revenue for the quarter, however, rose 18.7% Y.o.Y to RM38.7 mln, from RM32.6 mln in the same period last year.

• Consequently, the weak quarter weighed on the cumulative 1HFY18 results leading to net loss of RM34.1 mln, from a net profit of RM52.7 mln earlier, despite a 6.9% Y.o.Y increase in revenue to RM67.4 mln vs. RM63.1 mln in 1HFY17. (The Edge Daily)

• Messrs Adam & Co, the external auditors of loss-making APFT Bhd, has issued a statement expressing the material uncertainty related to the going concern of the group. This comes after the Practice Note 17 (PN17) company had incurred a net loss of RM67.6 mln during the financial period between 1st August 2016 and 31st January,2018, as well as a negative operating cash flow of RM8.4 mln as at 31st January, 2018.

• Further, the auditors has also highlighted that group’s total current liabilities has exceeded its total current assets by RM31.9 mln and that one of the group's subsidiaries was unable to meet its borrowings obligations during the financial period. Certain creditors had also issued letters of demand to the subsidiary due to long overdue debts. (The Edge Daily)

• Furniture-maker Poh Huat Resources Holdings Bhd's 2QFY18 net profit inched marginally higher by 2.0% Y.o.Y to RM10.8 mln, from RM10.6 mln a year ago, despite a slight drop in revenue to RM125.5 mln (-2.0% Y.o.Y) compared to RM127.7 mln previously. The positive earnings were mainly attributable to higher other income, lower income tax expenses and lower foreign currency translation loss. The group has declared a first interim dividend of 2.0 sen, payable on 27th August 2018.

• Cumulative 1HFY18 net profit, meanwhile, lost 40.0% Y.o.Y to RM17.1 mln, from RM28.3 mln in the last corresponding year, owing to higher cost of sales and lower revenue contribution, which dipped 1.0% Y.o.Y to RM287.4 mln, from RM291.1 mln a year earlier. (The Edge Daily)

• Alam Maritim Resources Bhd has been awarded several contracts to provide offshore support vessels services in Malaysia and Middle East, worth a total of RM226.1 mln. The projects are valid for the next six months to three years. Some of the contracts also have an extension option of one-to-two years exercisable by the awarders. (The Edge Daily)

• Berjaya Media Bhd (BMedia), the publisher of The Sun newspaper, has narrowed its 4QFY18 net loss to RM6.0 mln, from RM14.0 mln a year ago, as it no longer has to incur impairment loss on publishing rights after the group written off RM12.0 mln in impairment loss in 4QFY17. Quarterly revenue, however, declined by 28.4% Y.o.Y to RM6.5 mln, from RM9.1 last year.

• For the full year, however, BMedia also saw its net loss narrow to RM12.5 mln, compared to RM21.1 mln in FY18, although revenue was 22.2% Y.o.Y lower to RM33.3 mln, from RM42.8 mln in FY17. (The Edge Daily)

• Sunway Bhd is selling its 30.0% equity stake in a joint-venture (JV) Hoi Hup Sunway Novena Pte Ltd (HHSN) to Hoi Hup Realty Pte Ltd for S$39.9 mln (or RM118.2 mln) cash.

• HHSN was set-up in December 2012 to undertake the development of Royal Square at Novena in Singapore, which comprises a hotel, medical units and retail units. Royal Square at Novena was successfully completed on 12th July 2017, with an accumulated profit of S$132.5 mln contributed from the project.

• The proposed disposal marks the completion of the project and will enable Sunway to exit and monetise its investment in HHSN, securing funds for future projects, as well as new land bank acquisitions, to strengthen its presence in Singapore.

• The estimated loss on disposal arising from the proposed disposal is S$100,000, after taking into consideration the net book value of Sunway’s investment in HHSN as at 31st March, 2018 of S$40.0 mln. (Bernama)  

Source: Mplus Research - 27 Jun 2018