Near Term Positivity To Continue

• The FBM KLCI (+0.5%) kick-started the week on a positive tone, in-tandem with the bullish sentiment in the offshore markets as investors shrugged off ongoing trade conflicts, in-view of upbeat U.S. data and corporate earnings. The lower liners, however, was splashed in red while the broader market closed mostly higher.

• Market breadth was still negative as decliners outweighed advancers on a ratio of 512-to-316 stocks. Traded volumes, meanwhile, fell marginally by 0.2% to 2.01 bln shares amid the lack of trading catalysts in the lower liners.

• Heavyweights advancers include Nestle (+40.0 sen), Petronas Gas (+26.0 sen), Axiata (+22.0 sen), RHB Bank (+18.0 sen) and Petronas Dagangan (+12.0 sen). Consumer-products giant like Fraser & Neave (+94.0 sen) and Nestle (+40.0 sen) tracked higher, followed by BAT (+30.0 sen), Malaysian Pacific Industries (+25.0 sen) and PMB Technology (+25.0 sen).

• Top Glove (-RM2.97) led the broader market lower after its share price hit limit down on Monday, amid litigation issues related to its newly-acquired subsidiary Aspion. Other decliners, meanwhile, include KESM Industries (-32.0 sen), Ajinomoto (-30.0 sen), Kossan Rubber (- 30.0 sen) and Carlsberg (-26.0 sen). Keyindex losers were IHH Healthcare (-13.0 sen), Kuala Lumpur Kepong (-12.0 sen), Telekom Malaysia (-5.0 sen) and Press Metal (-4.0 sen). Nitrile-glove maker Hartalega also fell 8.0 sen, in-tandem with the broad decline in other rubber glove makers.

• Asian stockmarkets finished higher on Monday, led by Chinese equities on better-than-expected U.S. employment data. The Shanghai Composite rose 2.5%, on the back of gains in financials-related counters, while the Hang Seng index gained 1.3% as trade concerns take the backseat ahead of corporate earnings releases. Similarly, Japan’s Nikkei (+1.2%) also rallied alongside majority of ASEAN stockmarkets.

• U.S. stockmarkets posted strong gains on Monday, as investors cheered strong economic data. Gains in banking leaders helped the Dow (+1.3%) advance for the third consecutive session and erased its losses for the year. Meanwhile, techheavy indices like the S&P 500 and Nasdaq ended up by 0.9% each, despite the potential elevation of trade conflicts still lingering in the backdrop.

• Earlier, European stocks rallied for the fifth-straight session, driven by the positive sentiment in the global stockmarkets. The FTSE (+0.9%) was in the green, lifted by the weakness in Pound as investors digested ongoing developments from Prime Minister Theresa May’s government. Meanwhile, the DAX and the CAC also followed suit, closing 0.4% higher on Monday.

The Day Ahead

• Although the longer term outlook remains clouded by the tariff impositions that could curtail trade, we see the rebound on Bursa Malaysia extending over the near term in tandem with the market positivity that saw most global stockmarkets heading higher overnight. As it is, the near term positivity is brought about by the expectation of strong U.S. earnings that will be reported in the coming month and there has been little protest as yet over the tariffs that were imposed last Friday.

• While we see stocks generally heading higher, the gains may again be tempered by the still prevalent selling by foreign funds that could take advantage of the higher prices to further unload their shareholding. Consequently, this will keep a lid on the potential gains to the next resistance at 1,680 level. Thereafter, the resistance is at 1,690 level. The supports, meanwhile, are pegged at the 1,670 and 1,665 levels.

• With the calmer near term market outlook, we think the bouts of trading activities will increase as retail players will take some short-term positions. Quick profit taking actions, however, are expected that will limit the potential gains with most players unwilling to hold on to their open positions for longer due to the still cautious market undertone.

Company Update

• Econpile Holdings Bhd has bagged a contract to undertake the construction of working bored piles for the proposed Pavilion Damansara Heights (Parcel 2) mixed development at Jalan Damanlela, Kuala Lumpur, for a sum of RM122.0 mln. The 30 months contract is the second contract won for Phase 2 of Pavilion Damansara Heights. (The Star Online)

Comments

• The abovementioned contracts marks the first contract secured by the group in FY19. With the inclusion of the aforementioned contract, the group’s unbilled orderbook of approximately RM1.20 will provide earnings visibility over the next two years.

• With the contract falling within our targeted orderbook replenishment rate of RM400.0 mln in FY19, we leave our earnings forecast unchanged. We maintain our BUY recommendation on Econpile with an unchanged target price at RM0.90 by ascribing an unchanged target PER of 13.0x to its FY19 EPS of 6.8 sen. The ascribed target PER is in line with its peers with similar market capitalisation.

COMPANY BRIEF

• LPI Capital Bhd’s 2Q2018 net profit fell 3.4% Y.o.Y to RM65.7 mln, due to the inclusion of non-recurring gains of RM1.5 mln from the sale of equity investment in 2Q2017. Revenue for the quarter, however, rose marginally by 0.1% Y.o.Y to RM353.1 mln.
• For 1H2018, cumulative net profit declined 0.3% Y.o.Y to RM138.2 mln. Revenue for the period, however, added 4.8% Y.o.Y to RM734.0 mln. A first interim dividend of 26.0 sen per share was declared. (The Star Online)

• Atlan Holdings Bhd's 74.6%-owned subsidiary, Duty Free International Ltd (DFIL) is investing US$2.8 mln for a 70.0% stake in Brand Connect Holding Pte Ltd's enlarged share capital to develop and grow the group's alcohol distribution business and expand its market ops into Southeast Asia.

• DFIL has entered into a conditional agreement with Brand Connect and founders Robert Justin Frizelle and Meridian Compass Ltd, which will see DFIL subscribing for 2.8 mln new shares in Brand Connect. (The Edge Daily)

• Rohas Tecnic Bhd has bagged a joint venture (JV) contract for the reconductoring of three existing transmission lines for a combination of US$7.5 mln and 157.7 mln Bangladeshi Taka (about RM37.8 mln).
• A JV between Rohas Tecnic’s 75.0%- owned unit, HG Power Transmission Sdn Bhd and Apar Industries Bhd had accepted the contract from Power Grid Co of Bangladesh Ltd. The job is to be completed in 15 months. (The Edge Daily)

• N2N Connect Bhd has paid RM5.3 mln in additional income tax and penalty for the years of assessment 2012 to 2016 to the Inland Revenue Board. The amount was paid by the group and its wholly-owned subsidiary, N2N Global Solutions Sdn Bhd after the two entities were slapped with an additional tax of RM3.7 mln and RM1.6 mln in penalty. (The Edge Daily)

• Adventa Bhd has postponed its proposed three-for-five rights issue, which sought to raise RM50.4 mln, amid the ongoing legal proceedings between its Managing Director Low Chin Guan and Top Glove Corp Bhd.

• Adventa's board also clarified that Adventa and its subsidiaries are not involved in the legal proceedings between Low and other parties.

• Separately, Top Glove has reported that its legal suit against Adventa Capital Pvt Ltd stemmed from its discovery that all is not as it appeared at its newly acquired surgical glove manufacturing company Aspion Sdn Bhd.

• Following an investigation into the new subsidiary and investigation by an independent accounting firm, it has discovered that there was an overstatement of inventory, plant and machinery in Aspion's accounts amounting to RM74.4 mln, while the acquisition price of Aspion was found to have been overstated by RM640.5 mln. (The Edge Daily)  

Source: Mplus Research - 10 Jul 2018