Toppish Conditions Return

• Following the positive performance on Wall Street overnight, coupled with the rising commodity prices, the FBM KLCI (+0.6%) advanced for the third straight session to close marginally below the 1,800 psychological level ahead of the mid-week break. The lower liners – the FBM Small Cap (-0.8%), FBM Fledgling (- 0.2%) and FBM ACE (-0.5%), however, all retreated, but the broader market ended mostly positive.

• Market breadth remained negative as decliners overcame advancers on a ratio of 549-to-378 stocks. Traded volumes, however, rose 10.8% to 2.52 bln shares as profit taking activities among the lower liners escalated.

• Two-third of the key index constituents advanced, anchored by Petronas Gas (+84.0 sen), followed by Hong Leong Financial Group (+18.0 sen), Public Bank (+18.0 sen), Hartalega (+16.0 sen) and Hong Leong Bank (+16.0 sen). Significant gainers on the broader market were Panasonic (+84.0 sen), Allianz (+50.0 sen), BAT (+46.0 sen), United Plantations (+44.0 sen) and Carlsberg (+36.0 sen).

• Construction stocks like HSS Engineers (- 18.5 sen), Gabungan AQRS (-14.0 sen) and George Kent (-8.0 sen) sank after the East Coal Rail Link (ECRL) project was cancelled, while MPI and YNH Property fell 30.0 sen and 16.0 sen respectively. Key losers on the local bourse were Petronas Dagangan (-26.0 sen), PPB Group (-8.0 sen), Genting (-8.0 sen), Petronas Chemicals (-6.0 sen) and Malaysia Airport Holdings (-5.0 sen).

• Asia benchmark indices closed mostly higher as the Nikkei added 0.6%, lifted by technology shares. The Hang Seng Index rose 0.6% to record its fourth straight session of gains, taking cue from the positive performance in Wall Street, but the Shanghai Composite fell 0.7% on profit taking activities from the recent run-up. ASEAN stockmarkets, meanwhile, closed mostly higher yesterday.

• U.S. stockmarkets closed mostly lower overnight as the Dow fell 0.3% after the U.S. Federal Reserve signalled another rate hike soon, if the current firm economic fundamentals remain unchanged. On the broader market, the S&P 500 declined 0.04% after enduring a choppy trading session, but the Nasdaq gained 0.4%.

• Earlier, major European equities – the FTSE (+0.1%), CAC (+0.2%) and DAX (+0.01%) all chalked in minor gains ahead of the U.S. Federal Reserve minutes’ release. Notable advancers were banking stocks like Danske Bank A/S (+1.9%), Crédit Agricole S.A. (+1.6%) and Deutsche Bank (+0.8%).

The Day Ahead

• Despite index heavyweights making headway on Tuesday, the gains were not broad-based as there was still a measure of cautiousness among market players that saw market breadth staying on the weak side.

• Still, we see the selective buying sustaining among the index heavyweights in tandem with the positivity in global indices and this could allow the key index to make another pass at the 1,800 resistance level. However, we also note that the FBM KLCI and FBM Emas are already fairly valued and further gains will again push them into the expensive territory. Therefore, we think the upsides could be mild due to the toppish conditions. Above the 1,800 points level, the other resistance is at 1,804 and 1,812. The supports, meanwhile, are at 1,790 and 1,780 respectively.

• We see the mixed trend among the lower liners and broader market shares remaining for now as retail players are finding few fresh impetuses to take new positions for now.

Company Update

• Suria Capital’s 2Q2018 net profit added 2.9% Y.o.Y to RM15.2 mln, lifted by the higher topline growth in port operations and contracts, engineering and ferry terminal operations. Revenue for the quarter gained 32.7% Y.o.Y to RM96.2 mln. For 1H2018, cumulative net profit grew 5.9% Y.o.Y to RM29.5 mln. Revenue for the period rose 70.3% Y.o.Y to RM223.5 mln.

• The reported results came in within our expectations, making up 54.0% of our 2018 net profit estimate of RM54.6 mln. The reported revenue, however, came above our expectations, amounting to 58.5% of our full-year forecast of RM382.1 mln. The better-than-expected revenue was due to higher contribution from the port operations segment.

Comments

• As the reported earnings came in within our expectations, we leave our earnings forecast unchanged and we maintain our BUY recommendation on Suria with an unchanged target price of RM2.30.

• We value Suria through a sum-of-parts (SOP) approach as we valued both its port operations and property development segments on a discounted cash flow approach (key assumptions include a WACC of 8.5%, terminal growth rate of 1.5%) to reflect its ability to generate recurring revenues and steady earnings growth over the longer term. Meanwhile, we ascribed a 10.0x (unchanged) target PER to both its logistics and bunkering contract as well as engineering and ferry terminal operations businesses, based on their potential earnings contribution in 2019.

COMPANY BRIEF

• Sime Darby Plantation Bhd has entered into a Memorandum of Understanding (MoU) with China’s COFCO Group Co Ltd (COFCO) to collaborate on a number of palm oil-related ventures in a bid to boost demand for certified sustainable palm oil and increases in the trade volumes between the two companies.

• The MoU includes a joint-research on the health benefits of palm oil, developing capabilities to manufacture specialty oils and fats, and establishing joint sales and marketing activities to promote high value differentiated palm products in China. (The Star Online)

• Petronas Chemicals Group Bhd is actively searching for companies in Europe, US and India to expand its specialty chemical business, adding that new acquisitions would be a key step towards expanding the higher-margin specialty chemicals business.

• This comes after parent company, Petronas relies more on its downstream businesses to boost revenue on expectations of lower oil production output from the latter in the future. (The Edge Daily)

• Eastern & Oriental Bhd's (E&O) revenue growth will be underpinned by RM480.0 mln worth of unbilled sales, inventory (RM324.0 mln) and new launches worth up to RM1.5 bln in gross development value (GDV) over the next two years.
• Pipeline projects include ‘The Conlay’ located in Kuala Lumpur with a GDV of RM896.0 mln and ‘The Peak’ (GDV: RM278.0 mln) in Damansara Heights, and Plot 13A located at Gurney Green Park in Penang (GDV: RM350.0 mln). (The Edge Daily)

• MCT Bhd is purchasing a 7,143 sq. m. piece of leasehold land within Tropicana Golf & Country Resort in Bandar Damansara, Selangor from Tropicana Corp Bhd for RM42.3 mln cash.

• The total development cost of the proposed development is approximately RM265.0 mln and will be developed in two separate phases on the land, which has a direct frontage onto Persiaran Tropicana and is bordered by the Tropicana Grande luxury high-rise condominium. The project, which will include 226 units, is expected to generate a gross profit of RM146.0 mln and slated for commencement in 2019 until 2023. (The Star Online)

• Taliworks Corp Bhd has received a letter of offer from Pengurusan Air Selangor Sdn Bhd, as part of the latter's acquisition of Syarikat Pengeluar Air Sungai Selangor Sdn Bhd (SPLASH). The offer letter includes the key terms of settlement between Air Selangor, SPLASH and Sungai Harmoni relating to Sungai Harmoni’s outstanding receivables arising from its existing operations and maintenance of the Sungai Selangor Water Treatment Plant Phase 1 (SSP1), as well as the key terms in respect of the new operations and maintenance agreement (OMA) between Air Selangor and Sungai Harmoni. (The Star Online)

• Ranhill Holdings Bhd has announced that a suit for alleged non-payment of fees totalling 19.9 mln yuan (approximately RM12.8 mln) filed in China against its unit, Ranhill Water Technologies (Cayman) Ltd (RWTC) by Wahtoting Holding Ltd has been dropped.

• To recap, Wahtoting was appointed by RWTC to source for a party to acquire the stake in Ranhill Water (Hong Kong) and to form a strategic partnership with RWTC. The agreement was dependent upon key performance indicators to be met by Wahtoting, which went not satisfied. (The Star Online)

• Versatile Creative Bhd has terminated its Managing Director, Datuk Wong Kong Choong @ Leong Kong Choong and Group Chief Financial Officer, Tan Quok Eow with immediate effect for failing to provide a satisfactory answer against the allegations made against them in the show-cause letters that were issued to them earlier.

• To recap, the Board of Directors had issued and served the show-cause letters to the duo relating to irregularities in payments amounting to RM2.3 mln on 13th August 2018. (The Edge Daily)

• Sunway Bhd’s 2Q2018 net profit inched 1.0% Y.o.Y higher to RM199.4 mln, from RM196.1 mln last year, on the back of higher contributions from the construction sector, even after accounting for the MFRS15 adoption. Quarterly revenue, meanwhile, rose 4.0% Y.o.Y to RM1.29 bln, from RM1.24 bln in the previous corresponding year. Subsequently, the group has announced a dividend of 3.5 sen, payable on 18th October 2018. (The Edge Daily)

• Paramount Corp Bhd's 2Q2018 net profit more than doubled to RM42.3 mln, from RM18.1 mln a year ago, mainly driven by gains from land disposal. Revenue for the quarter also jumped 46.7% Y.o.Y to RM278.4 mln, from RM189.7 mln in the same quarter last year, while the group has declared a dividend of 2.5 sen per share, payable on 28th September, 2018. (The Edge Daily)  

Source: Mplus Research - 23 Aug 2018