Positive Offshore Market To Boost Local Stocks

• Tracking the weakness on Wall Street overnight, the FBM KLCI (-0.5%) gappeddown and subsequently erased all its previous two sessions’ gains after lingering the negative territory yesterday. The lower liners – the FBM Small Cap (- 0.3%), FBM Fledgling (-0.6%) and FBM ACE (-0.2%), all fell, while the REITS sector (+0.1%) was the only winner on the broader market.

• Market breadth stayed negative as decliners overcame advancers on a ratio of 2-to-1 stocks. Traded volumes fell 12.4% to 2.11 bln shares amid the negative market sentiment.

• More than two-thirds of the key index components fell, dragged down by Petronas Gas (-28.0 sen), Hong Leong Financial Group (-22.0 sen), KLK (-22.0 sen), Press Metal (-20.0 sen) and Petronas Dagangan (-10.0 sen). Amongst the biggest decliners on the broader market were BAT (66.0 sen), Heineken (- 32.0 sen), Scientex (-21.0 sen), Chin Teck Plantations (-20.0 sen) and Warisan TC Holdings (-20.0 sen).

• Notable gainers on the broader market include MPI (+46.0 sen), Malaysia Airport Holdings (+21.0 sen), JF Technology (+15.5 sen), Uchi Technologies (+15.0 sen) and DKLS Industries (+14.0 sen). There were only three winners on the FBM KLCI – Nestle (+90.0 sen), Malaysia Airport Holdings (+21.0 sen) and PPB Group (+6.0 sen).

• Asia benchmark indices remain in the red, taking cue from the negative sentiment in U.S. stockmarkets overnight as the Nikkei fell 0.1% after enduring a volatile trading session. Despite recovering most of its intraday losses, the Shanghai Composite fell 0.7% to record its extend its lossing streak to four days after the U.S. and China agreed to hold trade talks later this month, while the Hang Seng Index closed 0.8% lower. ASEAN stockmarkets, meanwhile, closed mostly lower yesterday.

• U.S. stockmarkets recovered all their previous session’s losses as the Dow jumped 1.6% higher, boosted by the news that U.S. and China agreed to hold talks to resolve trade dispute, coupled with the strong sales growth in Walmart Inc. On the broader market, the S&P 500 gained 0.8% with all 11 major sectors advancing, while the Nasdaq closed 0.4% higher.

• Earlier, major European equities – the FTSE (+0.7%), CAC (+0.8%) and DAX (+0.6%) recovered some of their previous session’s selloff amid the positive developments in trade talks between the U.S. and China. Gains were also underpinned by the higher commodity prices.

The Day Ahead

• With China and the U.S. going to the negotiating table to resolve their trade dispute, we see the overnight global equity market positivity extending to the Malaysian stockmarket that will also allow the stocks to close the week on a upbeat note.

• Back home, the ongoing results reporting season have yielded many improved performances that could provide some buying catalyst on selected stocks ahead of the flurry of results to be reported before the end of the month. With the positivity returning, the FBM KLCI could clear the 1,780 resisance with ease to target the 1,790 level. The 1,800 resistance level, however, remains formidable for now. The supports are at 1,770 and 1,760 respectively.
• We expect the positive market undertone to also extend to the broader market shares and lower liners as retail players are also likely to take advantage of the calmer market conditions to undertake trading activities.

Company Update

• Econpile Holdings Bhd has secured a contract worth RM30.1 mln from Richmore Development Sdn Bhd to undertake piling and sub-structure works for a development along Jalan Kia Peng. The contract comprises bored piling and substructure works for duration of 13 months and 28 days. (The Edge Daily)

Comments

• The abovementioned contracts marks the second contract secured by the group in FY19, bringing its orderbook replenishment to RM151.1 mln, representing 30.2% of our targeted orderbook replenishment rate of RM500.0 mln in FY19. With the inclusion of the aforementioned contract, the group’s unbilled orderbook of approximately RM1.23 bln will provide earnings visibility over the next two years.

• With the contract falling within our targeted orderbook replenishment rate, we leave our earnings forecast unchanged. We maintain our HOLD recommendation on Econpile with an unchanged target price at RM0.95 by ascribing an unchanged target PER of 13.0x to its FY19 EPS of 7.1 sen. The ascribed target PER is in line with its peers with similar market capitalisation.

COMPANY BRIEF

• Hock Seng Lee Bhd‘s 2Q2018 net profit jumped 44.3% Y.o.Y to RM14.1 mln, from RM9.8 mln in the previous corresponding quarter, boosted by higher progress billings from its construction segment, while revenue (+103.2% Y.o.Y) expanded to RM154.3 mln, from RM75.9 mln a year ago.

• Meanwhile, 1H2018 net profit also spiked 33.2% Y.o.Y to RM27.9 mln, from RM20.9 mln previously, on top of a 67.4% Y.o.Y gain in revenue to RM286.0 mln, from RM170.8 mln last year. Consequently, the group has declared a first interim dividend of one sen per share, payable on 10th October 2018.

• Currently, the group has over RM3.1 bln worth of projects in-hand, with about RM2.5 bln in unbilled sales, including the recently acquired Maktab Rendah Sains Mara project worth RM101.2 mln in Bintulu, Sarawak. (The Star Online)

• Matrix Concepts Holdings Bhd plans to launch about RM1.60 bln worth of new property projects in FY19, in-view of the resilient demand from homebuyers. The pipeline launches are mainly situated in its township developments, namely Bandar Sri Sendayan (BSS) in Negeri Sembilan and Bandar Seri Impian (BSI) in Johor. The group will also be launching its first high-rise serviced apartment in Kuala Lumpur - Chambers Kuala Lumpur - in 2H2018.

• As at 31st March2018, the Group had RM2.60 bln in ongoing developments, while unbilled sales climbed to RM1.1 bln. (The Star Online)

• Handal Resources Bhd 2Q2018 net loss narrowed to RM984,000 vs. RM1.3 mln a year ago, supported by stronger revenue growth and higher operating income for majority of business segment. Revenue for the quarter, meanwhile, rose 25.8% Y.o.Y to RM15.0 mln.

• For 1H2018, however, its net loss widened to RM1.2 mln, from RM636,000 previously due to higher administration, operating expenses as well as depreciation and amortisation cost even though revenue rose 10.9% Y.o.Y to RM29.1 mln, from RM26.2 mln in 1H2017.

• The group recently embarked on an internal restructuring exercise which saw the entry of reputable and experienced corporate figures from various fields to its board.

• Its initial steps to turnaround Handal include a cost rationalisation plan that will include an immediate reduction in Executive Directors’ pay by 30.0% as well as reducing other ancillary benefits resulting in estimated cost savings of RM2.5 mln per annum. (The Star Online)

• Apex Healthcare Bhd’s 2Q2018 net profit expanded 33.0% Y.o.Y to RM13.7 mln, from RM10.3 mln a year ago, thanks to favourable product mix, although quarterly revenue was flattish at RM156.0 mln.

• Cumulative 1H2018 net profit was also up by 31.8% Y.o.Y to RM26.9 mln, against RM20.4 mln in the same period last year, while revenue (+4.6% Y.o.Y) inched higher to RM324.4 mln, from RM310.0 mln last year. (The Edge Daily)

• Carlsberg Brewery Malaysia Bhd’s 2Q2018 net profit was only slightly higher by 4.9% Y.o.Y to RM63.9 mln, from RM60.9 mln previously, mainly due to better performance of its Malaysian and Sri Lankan operations, while revenue climbed 0.8% Y.o.Y to RM415.5 mln, from RM412.1 mln previously.

• The cumulative 1H2018 net profit, meanwhile, increased 12.8% Y.o.Y to RM144.7 mln, from RM128.3 mln for the same period last year. Revenue also gained 5.4% Y.o.Y to RM963.9 mln, from RM914.8 mln in the last corresponding period. The brewer has also proposed a second single tier interim dividend of 15.7 sen per share. (The Edge Daily)

• Daibochi Bhd's 2Q2018 net profit narrowed 7.8% Y.o.Y to RM4.7 mln, compared to RM5.1 mln last year, dragged down by higher key raw material costs and forex losses in the quarter under review. Revenue, however, rose 22.5% Y.o.Y to RM106.4 mln, from RM86.8 mln in 2Q2017. The group declared an interim single-tier dividend of 0.8 sen per share, payable on 27th September 2018.

• Even so, Daibochi’s 1H2018 net profit grew slightly by 2.9% Y.o.Y to RM11.1 mln, from RM10.8 mln a year ago, on top of a 16.7% Y.o.Y growth in revenue to RM211.1 mln, from RM181.0 mln earlier. (The Star Online)

• Dialog Group Bhd's 4Q2018 net profit added 10.9% Y.o.Y to RM114.9 mln, from RM103.6 mln a year ago, on lower operating expenses and increases in the group’s share of joint-ventures and associates' net profit, mainly from Pengerang LNG (Two) Sdn Bhd.

• For the full year, net profit expanded by 37.7% Y.o.Y to RM510.4 mln, from RM370.6 mln last year, despite weaker revenue (-8.3% Y.o.Y) contribution to RM3.11 bln, from RM3.39 bln in 2017. Subsequently, the group has proposed a final dividend of 1.8 sen per share. (The Star Online)

• Sarawak Plantation Bhd’s 2Q2018 net profit nearly halved to RM2.4 mln vs. RM4.2 mln a year ago, dragged down by lower realised ASPs and lower sales volume of crude palm oil and palm kernel. Revenue for the quarter also fell 19.2% Y.o.Y to RM67.0 mln, from RM83.0 mln previously.

• In 1H2018, Sarawak Plantation posted a 95.4% Y.o.Y drop in its net profit to RM658,000, from RM14.2 mln in the previous corresponding period, while revenue shed 28.4% Y.o.Y to RM137.9 mln, from RM192.6 mln a year earlier. (The Edge Daily)

• Sunway Construction Group Bhd’s 2Q2018 net profit was almost unchanged at RM35.9 mln, due to lower profitability in the precast segment, despite a 30.4% Y.o.Y spike in revenue for the quarter to RM544.3 mln, from RM417.2 mln. The group has declared a first interim dividend of 3.5 sen per share, payable on 27th September 2018.

• Cumulative 1H2018 net profit also grew marginally by 2.9% Y.o.Y to RM71.7 mln, from RM69.7 mln in the first half of 2017, although revenue grew 28.3% Y.o.Y to RM1.07 bln, from RM836.8 mln. (The Star Online)

• Warisan TC Holdings Bhd’s 2Q2018 net profit gained by more than two-fold to RM1.8 mln, from RM839,000 a year ago, attributed to higher revenue from its machinery division and improvements in the automotive business' overall gross profit margin. On the other hand, revenue declined by 16.5% Y.o.Y to RM112.1 mln, in comparison to RM134.3 mln in the same quarter last year. The group declared an interim single tier dividend of 1.0 sen per share, payable on 28th September 2018.

• For the cumulative 1H2018, net profit more than doubled to RM3.8 mln, from RM1.2 mln last year, despite a drop in revenue (-5.5% Y.o.Y) to RM233.2 mln from RM246.8 mln previously. (The Edge Daily)  

Source: Mplus Research - 17 Aug 2018