Rebound Still Elusive

• Despite opening higher at the start of the trading bell, the FBM KLCI (-0.6%) succumbed to further selling pressure as the key index closed lower for the third straight session yesterday. The lower liners – the FBM Small Cap (-0.8%), the FBM Fledgling (-0.5%) and the FBM Ace (- 1.2%) all extended their losses, while the construction sector (+0.1%) was the sole advancer on the broader market.

• Market breadth remained negative as decliners overwhelm advancers on a ratio of 558-to-278 stocks. Traded volumes, however, added 6.9% to 2.01 bln shares as profit taking activities took precedence.

• More than half of the key index constituents retreated, dragged down by Maybank (-32.0 sen), Maxis (-19.0 sen), Hong Leong Financial Group (-18.0 sen), MISC (-12.0 sen) and IOI Corporation (- 10.0 sen). Among the biggest decliners on the broader market were BAT (-90.0 sen), KESM Industries (-50.0 sen), UMS Holdings (-37.0 sen) and Apex Healthcare (-20.0 sen). T7 Global sank 7.0 sen after tycoon Tan Sri Vincent Tan said he will dispose his entire stake in the company.

• On the flipside, notable gainers on the broader market were Heineken (+24.0 sen), Aeon Credit (+22.0 sen), Chin Teck Plantations (+20.0 sen) Amway (+17.0 sen) and Supermax (+17.0 sen). Key winners on the FBM KLCI include Petronas Dagangan (+22.0 sen), Public Bank (+20.0 sen), PPB Group (+12.0 sen), RHB Bank (+9.0 sen) and Hong Leong Bank (+8.0 sen).

• Asia benchmark indices took another dive on escalating trade tension between the U.S. and China that resulted in the Nikkei falling 0.3%. The Shanghai Composite (- 1.1%) trended lower as well, while the Hang Seng Index sank 1.8%, erasing all its previous session’s gains. ASEAN stockmarkets, meanwhile, closed mostly lower yesterday.

• U.S stockmarkets ended lower overnight after reversing all their intraday gains with the Dow falling 0.7%, dragged down by selloff in banking and technology shares. On the broader market, the S&P 500 declined 0.9% to close below the 2,700 psychological level, while the Nasdaq finished 1.5% lower.

• Earlier, European benchmark indices - the FTSE (+1.1%), CAC (+0.9%) and DAX (+0.9%), all advanced after U.S. President Donald Trump soften his stance on China’s investments in U.S. Gains were underpinned by energy shares like Tullow Oil (+8.1%), Technip FMC (+5.4%) and BP (+3.4%) after crude oil prices rallied.

The Day Ahead

• There remains little reprieve for stocks on Bursa Malaysia with yet another day of decline as the foreign selldown on Malaysia stocks continues. The lingering concerns over the breakout of a trade war are also dampening investor sentiments.

• After the incessant falls since the conclusion of GE14, the FBM KLCI is nearing the bear market territory, falling more than 12% since topping the 1,895 points level in mid-April. The prevailing weak market conditions are unlikely to allow for the Malaysian to stage any meaningful recovery for now. In addition, the selldown by foreign funds are not abating as yet and this is likely to dampen the near term outlook further.

• Under the prevailing environment, the downside pressure is set to remain, especially as there is still no resolve to the impending trade war. On the downside, the supports are at 1,660 and 1,650 points for the FBM KLCI. The resistances, meanwhile, are at the 1,670 and 1,680 levels.

• We also see little reprieve for stocks in the broader market amid the cautious market sentiment and lack of positive leads. Therefore, the downside risk will continue to engulf the broader market stocks and send more retail players to the sidelines.

Company Update

• Comfort Gloves Bhd’s (CGB) 1QFY19 net profit fell 27.6% Y.o.Y to RM7.3 mln, from RM10.1 mln last year as the previous corresponding period included a deferred tax provision of RM2.3 mln. In addition, higher input costs and natural gas tariffs, as well as weaker U.S. Dollar also weighed on earnings. Revenue for the quarter, however, rose 13.7% Y.o.Y to RM106.6 mln vs. RM93.7 mln in 1QFY18.

Comments

• The group’s earnings were within our expectations, accounting for 23.5% of our full year estimated net profit of RM31.3 mln, while revenue accounted for 26.1% of our sales target of RM404.9 mln. Therefore, we leave our forecast unchanged.

• We also maintain our HOLD recommendation on CGB with an unchanged target price of RM0.92. Although we are positive on the group’s long-term earnings growth trajectory from increasing capacity, we remain cautious on the current business environment which is riddled with trade and political uncertainties that could impact the group’s bottomline, as well as trading interest in its shares.

• We also note that the group is in the midst of submitting a petition for its removal from the FDA red list; if successful, it could help alleviate concerns relating to its exports into the U.S.

• Our target price is arrived by ascribing an unchanged target PER of 17.0x to its FY19 EPS of 5.4 sen. The ascribed target PER remain at a discount to the PER of industry bellwethers like Hartalega Holdings Bhd and Top Glove Corporation Bhd, due to its smaller market capitalisation and capacity.

COMPANY BRIEF

• Country Heights Holdings Bhd is planning a bonus issue of up to 137.9 mln warrants to raise funds to finance its working capital needs. The five-year warrants are on the basis of one warrant-for-every two existing shares, while the exercise price has yet to be fixed. (The Star Online)

• TA Global Bhd will be delaying its Dutamas project as well as its TA 3 & 4 projects to next year as it uses the additional time to review the schemes in-view of the challenging property landscape

• As the company could not obtain the development permit in time for its Dutamas project, which has an estimated gross development value (GDV) of RM450.0 mln, TA Global could only launch the project in 1Q2019

• Meanwhile, the TA 3 & 4 projects, which have a combined GDV of RM2.6 bln, are expected to be launched in 3Q2019 and will be completed in about four years. (The Edge Daily)

• Berjaya Land Bhd has reported another quarter in the red with a 4QFY18 net loss of RM92.2 mln, from a net profit of RM88.6 mln last year, mainly due to forex losses and lower profit contribution from its number forecast operator business. Quarterly revenue also fell 6.0% Y.o.Y to RM1.59 bln, from RM1.68 bln in the same period last year.

• For the full year, Berjaya Land posted a net loss of RM189.5 mln, from a net profit of RM294.7 mln in FY17, despite only a marginal fall in revenue to RM6.37 bln. (The Star Online)

• MGB Bhd has received a letter of intent from LBS Bina Group Bhd, to undertake piling, pile cap and building works including internal infrastructure works valued at RM175.2 mln for the proposed Phase 3A and 3B development projects in Bandar Alam Perdana, Ijok, Selangor. The latter is also a major shareholder of MGB. (The Edge Daily)

• EA Technique (M) Bhd was awarded contracts to provide and operate two offshore support vessels (OSVs) for an undisclosed sum from ExxonMobil Exploration and Production Malaysia Inc, through a conditional Letter of Award (LoA) dated 23th May 2018.

• The contracts awarded are for the provision and operation of two units of fast crew boats (25 knots, 60 pax) shared between ExxonMobil and EnQuest Petroleum Production Malaysia Ltd, under the Integrated Logistic Control Tower Programme. (The Edge Daily)

• Gamuda Bhd's 3QFY18 net profit rose 17.0% Y.o.Y to RM200.7 mln, from RM170.9 mln previously, lifted by higher progress billings from the group’s construction projects, stronger overseas property sales, and contribution from several new property projects in Malaysia. Revenue jumped 47.0% Y.o.Y to RM1.24 bln vs. RM839.5 mln a year ago. The group also announced a 6.0 sen second interim dividend, payable on 31st July 2018.

• Cumulative 9MFY18 net profit was 23.0% Y.o.Y higher to RM615.0 mln, from RM499.3 mln in the previous corresponding year, in-tandem with the rise in revenue to RM3.01 bln (+37.0% Y.o.Y), from RM2.20 bln earlier. (The Star Online)

• Yinson Holdings Bhd‘s 1QFY19 net profit flatlined at RM60.4 mln against RM60.3 mln in 1QFY18, even though revenue spiked 36.4% Y.o.Y to RM235.2 mln, from RM172.4 mln. The tepid earnings were mainly resulted from the higher finance expenses and weaker share of profit in joint-ventures (JV). (The Star Online)

• Borneo Oil Bhd has sold its entire 95.0% equity stake in a precious metals mining company, Jusra Mining Merapoh Sdn Bhd for RM10.0 mln, inline with the group’s aim to streamline its mining operations, in a bid to focus its resources on the hard rock mining operations in Bukit Ibam, Pahang. The group has previously acquired Jusra for RM5.0 mln. Proceeds from the disposal will be used as working capital. (The Edge Daily)  

Source: Mplus Research - 28 Jun 2018