Still Overbought

• The FBM KLCI gave up almost all of its intra-day gains and closed a hairline above the breakeven level, weighed down by mild profit-taking in selected heavyweights. The lower liners, meanwhile, continued to head higher, although the broader market ended on a mixed tone.

• Market breadth was marginally positive as advancers edged decliners on a ratio of 480-to-432 stocks. Traded volumes, however, thinned by 16.8% to 2.31 bln shares as investors take a breather to digest fresh economic data and corporate earnings releases.

• Among the biggest blue chip advancers were Hong Leong Financial Group (+26.0 sen), Tenaga (+20.0 sen), Petronas Chemicals (+16.0 sen), Genting (+10.0 sen) and Kuala Lumpur Kepong (+10.0 sen). Notable gainers on the broader market include Panasonic Manufacturing (+72.0 sen), Scientex (+46.0 sen), Vitrox (+43.0 sen), Far East Holdings (+28.0 sen) and Ajinomoto (+20.0 sen).

• Significant losers on the broader market were United Plantations (-58.0 sen), Fraser & Neave (-44.0 sen), Hengyuan Refining (-16.0 sen) and United Malacca (-15.0 sen). Gamuda (-14.0 sen) also declined on potentially lower earnings should the disposal of its stake in water treatment concessionaire SPLASH materialises. Key losers on the big board were IHH Healthcare (-26.0 sen), Petronas Gas (-22.0 sen), Nestle (-20.0 sen), MISC (-18.0 sen and Digi (-8.0 sen).

• Chinese equities led the regional bourses higher after China slapped its own set of punitive tariffs in retaliation against the import tariffs recently announced by Washington. The Shanghai Composite (+1.8%) closed firmly in the positive territory, on expectations of easing monetary policy to counter the slowing economic growth, while the Hang Seng Index added 0.9% to 28,607.3 points. The Nikkei, meanwhile, narrowed by 0.2%, weighed down by losses energy-linked stocks. The majority of the ASEAN equities, meanwhile, finished positively yesterday.

• Major U.S. stockmarkets finished mostly lower as escalating trade concerns offset strong corporate earnings. The Dow (- 0.3%) declined – led by losses in Procter & Gamble, while the S&P500 erased 0.1% to 2,853.6 points. The Nasdaq (+0.04%), however, eked- out gains and closed higher for the eight-straight day.

• U.K. stockmarkets retreated as corporate earnings updates continue to drive sentiments. The FTSE fell by 0.5%, weighed down by losses in TUI (-2.5%) after the travel operator reported disappointing quarterly results. On the other hand, other European bourses like the DAX (+0.3%) and the CAC (+0.01%) rebounded from the red and closed higher on Thursday.

The Day Ahead

• Although the key index only posted marginal gains, it remains overbought amid the continuing support on selected heavyweights. Also, valuations remain toppish with the FBM KLCI’s 2018 and 2019 PERs at 17.3x and 16.1x respectively – already above the 15x-17x long term average range.

• While some of the recent gains were due to of pockets of fresh foreign buying, we still think that the toppish valuations will limit gains after the key index rebounded more than 8.0% over the past month. Hence, we continue to think that the key index is due for a pullback to adjust from overbought, although we do not discount the continuing selected institutional support will keep the market elevated for longer. The resistances are at 1,810 and 1,820 respectively, while the supports are at 1,800 and 1,790 respectively.

• Many lower liners and broader market shares are also overbought after their strong recovery recently. Therefore, we also think they are due for a consolidation over the near term.

COMPANY BRIEF

• Supermax Corp Bhd’s Group Executive Director, Datin Seri Cheryl Tan Bee Geok has vacated her office after she was fined RM7.0 mln and sentenced to a five-year jail term for insider trading offences. The Kuala Lumpur Sessions Court has convicted Cheryl and her sister for insider trading offences committed in October 2007.

• She had tipped her sister on the audit adjustments proposed by APLI’s auditors, which resulted in APLI reporting a higher loss for the financial year ended 30th June 2007 compared to the previously reported unaudited 4QFY07. The audit adjustments led to APLI being classified as a Practice Note 17 (PN17) company on 31st October 2007.

• Separately, the High Court has dismissed an application by Datuk Seri Stanley Thai Kim Sim - Cheryl’s husband to be reappointed as a Director of Supermax. The application was sought by Thai after he was disqualified as a Director of Supermax following his conviction of an insider trading offence in November 2017. (The Star Online)

• Barakah Offshore Petroleum Bhd was awarded a five-year contract by Sapura Exploration and Production Inc. The total value of the contract is not fixed and will depend on the actual scope based on work orders to be issued by the client from time to time throughout the duration of the contract. (The Star Online)

• Gamuda Bhd and Kumpulan Perangsang Selangor Bhd (KPS) have announced that they have accepted the State government’s offer for Syarikat Pengeluar Air Sungai Selangor Sdn Bhd (SPLASH). Both companies have reported that Pengurusan Air Selangor Sdn Bhd (Air Selangor) and SPLASH are expected to finalise the terms and conditions of the SPA by 14th September 2018. (The Edge Daily)

• Sunway Real Estate Investment Trust’s 4QFY18 net property income (NPI) rose 1.8% Y.o.Y to RM100.3 mln, lifted by improved performance in the office segment. Revenue for the quarter rose 2.8% Y.o.Y to RM136.3 mln.

• For FY18, cumulative NPI added 8.0% Y.o.Y to RM419.9 mln. Revenue for the year gained 7.2% Y.o.Y to RM560.4 mln. A distribution per unit (DPU) of 2.15 sen, payable on 12th September 2018, was declared. (The Edge Daily)

• Bintai Kinden Corp Bhd has been appointed a subcontractor to undertake works related to the construction of elevated stations for the Mass Rapid Transit 2 (MRT2) project. It anticipates the contract completing by November 2021. The contract, valued at a provisional sum of RM13.3 mln, was awarded by MRCB Builders Sdn Bhd. (The Edge Daily)

• Datasonic Group Bhd is partnering Bahraini company, Dynamic Structures WLL (DSWLL) to expand its security business internationally to 18 countries in the Middle East and North Africa (MENA) region. For this, it entered into a five-year exclusive agency agreement with DSWLL to jointly develop and coordinate business activities of secure identification, personalisation solution, integrated security and surveillance system. Datasonic will provide the full funding to establish a regional office, while DSWLL will assist Datasonic to obtain the licences, permits, and registrations which are required to commence operations. (The Edge Daily)

• Velesto Energy Bhd has bagged two drilling contracts from Petronas Carigali Sdn Bhd with an estimated combined value of US$10.8 mln (about RM43.9 mln). The award is for the provision of drilling rig services for two jack-up rigs, namely NAGA 3 and NAGA 5. (The Edge Daily)

• My EG Services Bhd has confirmed its expansion into Bangladesh after entering into a joint-venture with two other firms to provide technology and e-government services in that country. It signed the JV agreement with Bangladesh-based Control Data (BD) Ltd and My Paycheck Sdn Bhd. Control Data will hold a 55.0% stake in the JV, while My EG International will have a 40.0% stake and My Paycheck the remaining 5.0%. (The Edge Daily)

• Ranhill Holdings Bhd’s 2Q2018 net profit rose 6.6% Y.o.Y to RM15.4 mln, helped by the increase in the volume of water consumption in SAJ Ranhill Sdn Bhd. Revenue for the quarter climbed 3.1% Y.o.Y to RM379.5 mln.

• For 1H2018, cumulative net profit added 11.1% Y.o.Y to RM33.6 mln. Revenue for the quarter increased 2.8% Y.o.Y to RM739.8 mln. (The Edge Daily)

• Asdion Bhd has proposed a private placement of up to 10.0% of its issued shares, or up to 16.5 mln new placement shares, to raise RM3.8 mln to pay overdue finance lease liabilities and trade creditors. Assuming an indicative price of 23 sen per share — a discount of approximately 4.6% to the volume weighted average market price of Asdion's shares for the five market days up to 8th August 2018 of 24.1 sen, the proposed private placement is expected to raise gross proceeds of up to approximately RM3.8 mln. (The Edge Daily)

• IHH Healthcare Bhd's planned purchase of Indian hospital group Fortis Healthcare has been derailed by a court order initiated by Japanese drugmaker, Daiichi Sankyo. Malvinder and Shivinder Singh, who founded Fortis, were ordered in January to pay 35.0 bln rupees in damages to Daiichi Sankyo over the sale of Ranbaxy Laboratories, a generic drugmaker. The brothers were found to have withheld critical information from Daiichi Sankyo, when they sold their stakes in Ranbaxy in 2008. The application could delay the timeline of IHH’s acquisition into Fortis. (The Edge Daily)  

Source: Mplus Research - 10 Aug 2018