Mild Recovery In Store

• The FBM KLCI snapped its winning streak with more than half of its members in the red as investors monitor potential developments from the ongoing trade spat between U.S. and China. The bluechip gauge logged its fourth-straight week of decline; closing 1.6% W.o.W lower to 1,663.9 points. All of the lower lines extended their losses, alongside all ten subsectors in the broader market.

• Market breadth remained negative as losers beat winners on a ratio of 539-to- 286 stocks. Traded volumes also dropped 7.1% to 2.02 bln shares, weighed down by the risk-off sentiment.

• Banking giants like Hong Leong Financial Group (-40.0 sen) and Public Bank (-38.0 sen) were amongst the blue-chip decliners, followed by were Petronas Gas (-58.0 sen), Axiata (-26.0 sen) and PPB Group (-26.0 sen). Broader market underperformers, meanwhile, include consumer products bellwethers like Fraser & Neave (-RM2.24) and Dutch Lady (-66.0 sen), alongside BAT (-32.0 sen), Padini (-20.0 sen) and Top Glove (- 20.0 sen).

• On the winners’ side, chart-toppers were Hong Leong Industries (+20.0 sen), Shangri-La Hotels (+19.0 sen), PMB Technology (+15.0 sen) and Magni-Tech (+14.0 sen). Ideal United (+11.0 sen) also posted its sixth-straight session of gains on Friday. Meanwhile, only Dialog (+3.0 sen), Malaysia Airport (+1.0 sen) and Digi (+1.0 sen) outperformed its Main Board peers.

• Key regional stockmarkets closed higher on Friday but still reported losses for the week following the lead-up to the U.S.- Sino tariffs deadline. Chinese stocks rebounded from its earlier losses on bargain-hunting activities. The Shanghai Composite (+0.5%) closed in the positive territory alongside the Hang Seng Index (+0.5%). The Nikkei, meanwhile, added 1.1%, with majority of its sectors in the green. The majority of ASEAN stockmarkets also followed suit, closing on an upward bias at Friday’s closing bell.

• Moderated wages growth coupled with higher-than-expected unemployment data lifted Wall Street into the green, allaying fears of rising U.S.-Sino trade conflicts. The Dow (+0.4%) came off its intra-day high on gains in blue-chip tech stocks like Apple and Microsoft. On the broader market, the S&P 500 (+0.9%) and Nasdaq (+1.3%) tacked their two-week high, although trading volume was thin last Friday amid trade uncertainties.

• Major European key bourses eked out gains after clawing back earlier losses as the U.S. and China kicked off Friday with tit-for-tat import tariffs. The DAX added 0.3%, boosted by banks as investors digested fresh corporate news out from the banking industry. The FTSE and the CAC also finished in the positive territory, ending 0.2% higher on Friday’s close.

The Day Ahead

• Stocks on Bursa Malaysia took a fresh beating last Friday, giving back all its recent gains and bucked the positive trend across the region last Friday. The steep pullback also placed the Malaysian key index in a guarded mood again, implying that the selling pressure is still widespread, particularly from foreign shareholders that renewed their selldown after a lull earlier in the week.

• As it is, investor interest is still indifferent due to the mostly cautious market undertone that is still uncertain about the country’s fiscal position under the new government and the potential impact on the export performance amid the trade dispute between the U.S. and China – two major trading partners that collectively constitutes to about a quarter of Malaysia’s total exports.

• Although we see the lack of buying interest continuing to dampen the market’s upside prospects, we think there could be a mild recovery to start the week on mild bargain hunting activities after last Friday’s falls and playing catch up to the overseas gains. The rebound could see the FBM KLCI climbing to the 1,670 level again, while the supports are at 1,660 and 1,650 levels.

• Elsewhere, the broader market shares and the lower liners could still face an insipid trading environment amid the continuing lack of new leads and the still cautious market undertone.

Company Update

• Protasco Bhd is instructed to pay its subcontractor a total of RM3.0 mln for a payment claim requested in February 2018. Protasco has received an adjudication decision for the claim following a dispute with Kuasatek (M) Sdn Bhd over the mechanical and electrical (M&E) work packages under a project previously awarded Protasco

• To recap, Kuasatek was the M&E works sub-contractor for the construction of a four-storey office building with basement car parking at Bukit Jalil, Kuala Lumpur. The office building is for the Asian Football Confederation, the governing body of Asian football.

Comments

• We are negative on the abovementioned adjudication of RM3.0 mln as it will impact Protasco’s bottom line in 2018. After adjusting Protasco’s bottom line, we expect the group to record a net profit of RM26.9 mln (-7.2%) in 2018.

• Despite the revision in its net profit, we, however, maintain our BUY recommendation on Protasco with an unchanged target price of RM0.55, after rolling our valuations metrics to 2019.

• Our target price is derived on a sum-ofparts basis by ascribing an unchanged target PER of 8.0x to its 2018 construction earnings as well as a target PER of 8.0x (unchanged) to its 2018 concession and engineering services’ earnings. Its education and trading units valuations are pegged at target PERs of 5.0x respectively due to their smaller scale businesses, while its property development division’s valuation is from ascribing an unchanged 0.5x to its BV.

COMPANY BRIEF

• MISC Bhd has secured a 16-year charter contract worth US$441.0 mln from Hess Exploration and Production Malaysia BV for the lease of a floating, storage and offloading facility (FSO) known as FSO Mekar Bergading on a bareboat basis. The contract was pursuant to a sale and charter agreement in respect of the FSO between HESS and MISC, which resulted in MISC acquiring ownership of the FSO from HESS. The charter will commence latest by 1st September 2018. (The Star Online)

• Red Sena Bhd has announced that it will not be able to secure a qualifying acquisition (QA) by its 10th December 2018 deadline. This came after taking into consideration of the processes and approvals required to complete the QA as well as its remaining time frame of five months until the deadline.

• Failure to complete the QA within the permitted time frame would entail Red Sena being dissolved, wound up and liquidated under the Companies Act 2016 within 60 days after the deadline. (The Edge Daily)

• Top Glove Corp Bhd and its whollyowned unit Top Care Sdn Bhd have initiated a writ action against two directors of Aspion Sdn Bhd for a sum of no less than RM714.9 mln. Top Glove and Top Care also initiated two separate originating summons against Aspion's former parent company Adventa Capital Pte Ltd to restrain the latter from disposing of its assets in Malaysia and Singapore by the same amount. In the writ action, Top Glove alleged Aspion directors Low Chin Guan and Wong Chin Toh were in a conspiracy to defraud the company by tricking it into acquiring Aspion from Adventa Capital for RM1.37 bln in early 2018. (The Edge Daily)

• KUB Malaysia Bhd has disposed of its 100.0% interest in A&W (Malaysia) Sdn Bhd for RM34.0 mln to Inter Mark Resources Sdn Bhd (IMRSB). The proposed disposal is expected to record a one-off estimated net gain of about RM18.9 mln, including the reimbursement of intercompany balances of RM4.0 mln.

• IMRSB is a private limited company whose principal shareholder, Ang Choon Yan, is the founder of a number of F&B businesses. He is the substantial shareholder of Revenue Valley Sdn Bhd, which has ties with Ekuinas, and operates Tony Roma's and The Manhattan Fish Market. (The Edge Daily)

• Ta Ann Holdings Bhd has received its first ever sustainable forest management certification for its Malaysian operations, for its forest plantation in Sarawak.

• Ta Ann’s Kapit Forest Management Unit (FMU), managed by its wholly-owned subsidiary Tanjong Manis Holdings Sdn Bhd, has been awarded a three-year Certificate for Forest Management (Natural Forest) under the Malaysian Timber Certification Scheme on 11th June 2018. (The Edge Daily)

• Versatile Creative Bhd has reported that the recent discovery of unauthorised payments by the company to third parties and the subsequent investigation it is conducting on the matter are not expected to impact its operations. The investigation and forensics audit, which commenced on 3rd July2018, is expected to be completed within three weeks from the commencement date. (The Edge Daily)  

Source: Mplus Research - 9 Jul 2018