Valuations Turn Expensive

• The FBM KLCI shrugged off the extended selling on Wall Street yesterday to close strongly in the green, on the back of buying-support from foreign funds. The lower liners – The FBM Small Cap (- 0.1%), The FBM Fledgling (-0.02%) and the FBM Ace (-0.7%) remained bearish amid the mixed broader market.

• Market breadth was still negative as decliners thumped advancers on a ratio of 479-to-438 stocks, while traded volumes jumped 23.4% to 2.71 bln shares on the month-end window dressing activities.

• Significant key-index advancers were Tenaga Nasional (+54.0 sen), Hong Leong Financial Group (+28.0 sen), Malaysia Airports (+18.0 sen), MISC (+18.0 sen) and Press Metal (+18.0 sen). Broader market chart-toppers, meanwhile, include Far East Holdings (+22.0 sen) alongside Chin Teck Plantations (+25.0 sen), Analabs (+20.0 sen), Perusahaan Sadur Timah (+20.0 sen) and Lotte Chemical Titan (+13.0 sen), lifted by upbeat quarterly earnings.

• On the flipside, underperforming broader market stocks were Dutch Lady (-86.0 sen), BAT (-28.0 sen), Malaysian Pacific Industries (-26.0 sen), Time Dotcom (- 20.0 sen) and Apollo Food (-15.0 sen). Blue-chip gauge losers, meanwhile, include Petronas Gas (-38.0 sen), PPB Group (-8.0 sen), Genting Malaysia (-5.0 sen), IHH Healthcare (-5.0 sen) and Maybank (-4.0 sen).

• Japanese equities rallied slightly after the Bank of Japan kept its interest rates unchanged, as expected. The Nikkei eked-out gains, albeit weighed down by losses in banking stocks, while the Shanghai Composite snapped four sessions of losing streak, despite weakerthan-expected manufacturing data. The Hang Seng Index, however, slipped on losses in Tencent (-3.3%), in-tandem with the rout in U.S. large cap tech stocks. ASEAN stockmarkets, meanwhile, were broadly positive on Tuesday.

• U.S. equities finished broadly higher as major bourses booked solid returns in July ahead of the U.S. Federal Reserve’s two-day meeting and on hopes of U.S and China meeting to resolve their trade disputes. The Dow (+0.4%) fell from its intraday high, albeit still closing with gains, while on the broader market, the S&P500 and Nasdaq closed 0.5% and 0.6% higher respectively as investors await Apple’s results due after market hours.

• Earlier, key European stockmarkets rallied on China and the U.S. looking at resuming trade talks to resolve trade conflicts. The FTSE climbed 0.6% - led by gains in commodity-linked companies. Similarly, the DAX (+0.1%) and the CAC (+0.4%) also posted gains, although slightly weighed down by weaker Eurozone economic growth in 2Q2018.

The Day Ahead

• The key index was largely pushed up by the renewed foreign buying activities in the afternoon session in what was seen as a portfolio realignment exercise. Therefore, we think they could just be an aberration as the buying interest was selective.

• Nevertheless, we think there could be further near term upsides as the threat of an all-out trade war between China and the U.S looks to diminish, alleviating some of the recent market concerns. Still, we see limited near term upsides as the market continues to be overbought, leaving little room for further upsides, in our view. At the same time, the key index has surged more than 7.0% in July, which is also overdone as valuations are looking increasingly stretched. The resistances are at 1,790 and 1,800, while the supports are at 1,780 and 1,770 respectively.

• It is a different environment among the lower liners with stocks in the FBM Small Cap, Fledgling and ACE indices still undergoing a consolidation spell, which looks to sustain amid the lack of new leads.

COMPANY BRIEF

• Opcom Holdings Bhd (Opcom) was awarded a RM11.2 mln contract from Telekom Malaysia Bhd. The contract involved the provision of works and services as a ‘Rakan Unifi’ for a period of 18 months commencing from 2nd July 2018 to 31st December 2019. (The Star Online)

• The independent auditors of Scomi Group Bhd have highlighted a material uncertainty relating to the going concern of the group, in an emphasis of a matter paragraph of the audit report for the group's financial year ended 31st March 31 2018 (FY18). The auditors, KPMG PLT noted Scomi Group, alongside its subsidiaries, have incurred net losses of about RM332.1 mln for FY18, while its net current assets stood at RM80.0 mln.

• Also highlighted were several project disputes and problems faced by the group among which is its ongoing legal battle with Prasarana Malaysia Bhd over the RM494.0 mln monorail expansion project. (The Edge Daily)

• YTL Hospitality Real Estate Investment Trust’s (REIT) 4QFY18 net property income (NPI) increased 21.5% Y.o.Y to RM58.1 mln, mainly due to contribution from the Majestic Hotel in Kuala Lumpur that was acquired in November 2017. Revenue for the quarter grew 4.9% Y.o.Y to RM116.6 mln. A final distribution per unit (DPU) of 1.96 sen, payable on 30th August 2018 was declared. (The Edge Daily)
• Serba Dinamik Holdings Bhd has inked a Heads of Agremeent (HoA) with Hill International NV to jointly undertake the proposed development of the Pengerang International Commercial Centre (PICC) in Pengerang, Johor. The PICC project was initiated by the group, following a Memorandum of Agreement dated 18th August 2017.
• The venture will allow Serba Dinamik to collaborate with Hill International’s potential luxury tourism destination development project in Indonesia, where the latter company is currently working with a local Indonesian company. (The Edge Daily)

• Perusahaan Sadur Timah Malaysia Bhd’s (Perstima) 1QFY19 net profit surged 327.9% Y.o.Y to RM12.1 mln, thanks to higher profit margins from Vietnam operations. Revenue for the quarter rose 0.6% Y.o.Y to RM238.8 mln. (The Edge Daily)

• Globetronics Technology Bhd's 2Q2018 net profit improved 32.3% Y.o.Y to RM9.3 mln, lifted by higher volume loadings of products from certain customers and a forex gain of RM0.7 mln. Revenue for the quarter grew 13.7% Y.o.Y to RM71.5 mln. For 1H2018, cumulative net profit jumped 109.1% Y.o.Y to RM24.5 mln. Revenue for the quarter gained 40.1% Y.o.Y to RM158.01 mln. (The Edge Daily)

• Mohd Faisal Kaim Abdullah has resigned as the Chief Executive Officer of Halex Holdings Bhd to pursue other interests, with effect from 31st July 2018. He had been the CEO of Halex since May 2017. Prior to that the Mohd Faisal was the company's Managing Director and Chief Risk Officer. (The Edge Daily)

• Datasonic Group Bhd has reported that its unit has yet to receive a writ of summons from Fima Corp Bhd's subsidiary, Percetakan Keselamatan Nasional Sdn Bhd (PKN) on a lawsuit claim for RM25.0 mln in alleged unpaid dues. Nevertheless, the group said that it reserves all rights to claim against PKN for damages arising from the latter's claim and that the group is contemplating a counter-claim for that. (The Edge Daily)  

Source: Mplus Research - 1 Aug 2018