More Mild Gains

• The positive sentiment on Wall Street overnight allowed the FBM KLCI (+0.4%) to recover most of the previous session losses last Friday. Despite that, the FBM KLCI halted a five consecutive weekly winning streak, falling 1.2% W.o.W. The lower liners – the FBM Small Cap (+0.2%), FBM Fledgling (+0.5%) and FBM ACE (+0.5%), all rebounded, while the broader market closed mostly higher.

• Market breadth turned positive as advancers outnumbered decliners on a ratio of 466-to-403 stocks. Traded volumes, however, fell 5.1% to 2.00 bln as investor opted to wait for further market leads.

• Petronas Dagangan (+30.0 sen) topped the local bourse advancers list, followed by MISC (+14.0 sen), KLCC (+12.0 sen), KLK (+10.0 sen) and Dialog Group (+9.0 sen). Consumer products stocks like BAT (+56.0 sen), IQ Group (+34.0 sen), Dutch Lady (+22.5 sen) and Heineken (+14.0 sen) advanced, while MPI gained 34.0 sen.

• In contrast, Ajinomoto (-32.0 sen), Lysaght Galvanized (-20.0 sen), Far East Holdings (-18.0 sen), KESM Industries (- 18.0 sen) and Scientex (-13.0 sen) retreated on the broader market. Key losers on the FBM KLCI were Nestle (- 60.0 sen), Petronas Gas (-12.0 sen), Petronas Chemicals (-10.0 sen), Hong Leong Financial Group (-8.0 sen) and PPB Group (-6.0 sen).

• Asia benchmark indices ended mostly higher last Friday as both the Nikkei and Hang Seng Index rose 0.4% each, taking cue from the positive sentiments on Wall Street. The Shanghai Composite (-1.3%), however, extended its losses for the fifth straight session to close below the 2,700 psychological level on weakness in healthcare stocks amid a vaccine scandal. ASEAN stockmarkets, meanwhile, closed mostly higher last Friday.

• Wall Street edged higher last Friday as the Dow rose 0.4%, boosted by the upcoming trade talks with China. On the broader market, the S&P 500 added 0.3% with all 11 major sectors extended their gains, while the Nasdaq finished 0.1% higher after recovering all its intraday losses.

• Earlier, major European equities closed relatively mixed, positing their third weekly decline. The FTSE chalked in 0.03% gains after recouping all its intraday losses. Both the CAC and DAX, however, fell 0.1% and 0.2% respectively, dragged down by lingering concerns over Turkey’s currency crisis.

The Day Ahead

• The continuing positivity in most global indices at the end of last week will continue to buoy the local equity market over the near term, in our view. We see funds, particularly locals, continuing to use the more positive market undertone to provide support to index heavyweights on Bursa Malaysia. In addition, there should also be selected support on stocks posting firmer results as more companies report their results ahead the end of the quarterly results reporting season next week.

• Nevertheless, we think the upsides could be limited on valuations grounds as further gains are again tipping the key index closer to the expensive territory. Therefore, we think the 1,790 level will be the near term resistance level, followed by the 1,800 points level, which should remain a formidable level to clear. The supports are at 1,780 and 1,770 respectively.

• The lower liners and broader market shares are also seeing a revival of late and should continue to do so over the near term, in line with the mild positivity in index-linked stocks.

MACRO BRIEF

• Economic growth for Malaysia in 2Q2018 grew at 4.5% Y.o.Y, which was below the consensus estimates of more than 5.0%. The decline was due to unplanned supply outages in the mining sector, coupled with production constraints and adverse weather conditions affecting the agriculture sector.

• On a seasonally-adjusted basis, the economy grew by 0.3% Q.o.Q. Meanwhile, headline inflation in 2Q2018 declined to 1.3% Y.o.Y in 2018, mainly reflecting the zero-rating of the GST rate that offset the higher transport inflation after RON95 fuel price was fixed at RM2.20 per litre since 22nd March 2018. (The Star Online)

Company Update

• AWC Bhd has secured the extension for two IFM contracts providing comprehensive management, maintenance and operational services for Galeria PJH, Putrajaya and MITI headquarters, Kuala Lumpur, from Putrajaya Holdings Sdn Bhd. The first contract, which has commenced on 1st August 2018 until 31st July 2020, is worth RM3.9 mln, while the second contract worth RM5.9 mln is valid from 15th August 2018 to 14th August 2020.

Comments  

• We leave our earnings forecast unchanged for now as the newly clinched IFM contract is within our expected orderbook replenishment estimates, accounting for slightly more than 10.0% of the total replenishment target in FY19. Consequently, we maintain our BUY recommendation on AWC, but with a higher target price of RM0.90 (from RM0.85), by ascribing a higher target PER of 10.6x from (10.0x) to its unchanged FY19 EPS of 8.5 sen. The slight increase in the target PER is in-line with the minor rebound in the share price of its nearest competitor, UEM Edgenta Bhd, which also has a larger market capitalisation.
• Moving forward, we continue to like AWC for its sizable orderbook worth more than RM1.0 bln, recurring revenue stream, solid balance sheet and proven trackrecord. Downside risks include project delays, unexpected contract termination and lower-than-expected orderbook replenishment. Re-rating catalysts, meanwhile, include sizable new contracts and potential earnings consolidation from Trackwork upon the completion of the proposed acquisition.

COMPANY BRIEF

• Axiata Bhd’s 63.0%-owned Bangladesh unit, edotco group has obtained a conditional tower sharing licence from the Bangladesh Telecommunication Regulatory Commission (BTRC), which will allow the former to build and manage telecommunication towers for multiple mobile network operators in Bangladesh. Axiata currently owns and operates over 9,000 towers in the country. (The Edge Daily)

• IOI Corp Bhd’s 4QFY18 net profit fell significantly by 88.7% Y.o.Y to RM35.8 mln, from RM317.5 mln previously, mainly due to forex losses, while revenue was slightly higher by 4.0% Y.o.Y to RM1.8 bln, from RM1.73 bln in the same quarter last year.

• Nonetheless, IOI’s FY18 net profit more than quadrupled to RM3.06 bln, from RM743.2 mln the year before, despite the marginal increase in revenue (+2.3% Y.o.Y) to RM7.42 bln, from RM7.25 bln in FY17. The group has also declared a second interim dividend of 4.5 sen per share, compared to 5.0 sen 4QFY17. (The Star Online)

• Kossan Rubber Industries Bhd’s 2Q2018 net profit slipped 2.5% Y.o.Y to RM44.7 mln, compared to RM45.8 mln a year ago, dragged down by the weaker performance of its gloves division due to higher material and energy costs as well as stronger Ringgit in the period. However, the downside was slightly offset by improved performance in the technical rubber products division. Quarterly revenue rose 1.3% Y.o.Y to RM496.8 mln, from RM490.5 mln previously.

• Cumulative 1H2018 net profit inched lower by 3.3% Y.o.Y to RM90.0 mln, from RM93.1 mln last year, while revenue narrowed marginally to RM980.9 mln (- 1.0% Y.o.Y) vs RM990.5 mln in 1H2017. (The Edge Daily)

• Malayan Flour Mills Bhd's (MFM) 2Q2018 net profit plunged 70.5% Y.o.Y to RM4.8 mln, from RM16.2 mln in the previous corresponding period, largely due to lower profits in the flour and grains trading and poultry integration segments. Quarterly revenue also declined 4.9% Y.o.Y to RM547.7 mln, from RM575.9 mln. Nonetheless, the group has proposed an interim dividend of 2.0 sen per share, payable on 2th September 2018.

• Cumulative 1H2018 net profit also tanked 84.5% Y.o.Y to RM6.4 mln, from RM41.1 mln a year ago, while revenue fell 5.8% Y.o.Y to RM1.11 bln, from RM1.18 bln earlier. (The Star Online)

• Mercury Industries Bhd has announced that a portion of its on-going PR1MAlinked contract in Melaka has been suspended, with the cancelled portion estimated at RM73.1 mln. To recap, the group first secured the contract worth RM106.6 mln in 2016. The termination is expected to reduce group earnings in 2018. (The Edge Daily)

• Pesona Metro Holdings Bhd has been awarded a RM218.2 mln contract to build a 41-storey commercial tower in Jalan Conlay, Kuala Lumpur. The project will be undertaken by a joint-venture (JV) company over 26 months from September 2018 to October 2020. The project will also be internally-funded. (The Edge Daily)

• Serba Dinamik Holdings Bhd is formalising its JV with Izin Budi Sdn Bhd to develop a piece of land measuring 15.9 ac. in Bukit Pelali, Pengerang, a year after the two parties first inked a Memorandum of Agreement (MoU) on the proposal.

• Moving forward, Serba Dinamik will be the developer for the project, which forms part of the 132-ac. mixed development Pengerang Integrated Development Project (PIDP) that would complement the Pengerang Integrated Complex by Petronas. (The Edge Daily)

• Sime Darby Plantation Bhd is planning to sign an MoU with China National Cereals, Oils and Foodstuffs Corp Group for the technical development on further downstream applications for palm oil and palm-based products in China. This would be done concurrent with Prime Minister Tun Dr Mahathir Mohamad’s visit to the country. (The Edge Daily)  Star Media Group Bhd's 2Q2018 net profit plummeted 83.4% Y.o.Y to RM1.4 mln vs RM8.5 mln in the same period last year, hit by a lower advertising revenue after the 14th general election. Revenue, meanwhile, also dropped by 15.1% Y.o.Y to RM99.5 mln, from RM117.2 mln a year ago.

• Cumulative 1H2018 net profit also fell 20.0% Y.o.Y lower to RM12.7 mln, from RM15.2 mln a year ago, while revenue shrunk 11.6% Y.o.Y to RM208.5 mln, compared to RM235.8 mln in 1H2017. (The Star Online)  

Source: Mplus Research - 20 Aug 2018