Still Rising, But Upsides Seen Modest

• The FBM KLCI (+0.2%) closed on an upbeat tone, lifted by buying-interest in selected heavyweights amid the prevailing positive global equity market backdrop and the Ringgit’s appreciation. The lower liners, however, remained insipid as the FBM Small Cap, FBM Fledgling and FBM Ace indices continued their downtrend amid a mixed broader market.

• Market breadth was still negative as decliners outrun the advancers on a ratio of 572-to-376 stocks. Traded volumes, however, rose 6.4% to 2.75 bln on the back of selling-pressure in the lower liners.

• Petronas-affiliated companies like Petronas Dagangan (+30.0 sen), Petronas Gas (+30.0 sen) and Petronas Chemicals (+13.0 sen) led the blue-chip gauge higher, followed by Hong Leong Financial Group (+20.0 sen) and Hartalega (+16.0 sen). Broader market winners include Ideal United Bintang, which jumped 39.0 sen after reporting stellar 1H2018 net profit, alongside United Plantations (+30.0 sen), Hong Leong Industries (+26.0 sen), Heineken Malaysia (+24.0 sen) and Top Glove (+20.0 sen).

• In contrast, broader market underperformers were Pos Malaysia (- 49.0 sen), BLD Plantation (-25.0 sen), IQ Group (-17.0 sen), Perusahaan Sadur Timah (-14.0 sen) and United U-Li Corporation (-12.5 sen). Meanwhile, Nestle (-RM1.00), Sime Darby Plantation (-14.0 sen), MISC (-10.0 sen), Axiata (-7.0 sen) and Hong Leong Bank (-6.0 sen) retreated yesterday.

• Chinese equities rallied as investors digest a more dovish outlook by the U.S. Federal Reserve and China’s new currency policy in a bid to arrest the Yuan’s decline. The Shanghai Composite jumped 1.9% to 2,780.9 points, lifted by a broad rally across its sub-sectors The Nikkei also rose 0.9%, while the Hang Seng Index snapped its two-day losing streak and closed 2.2% higher. Most ASEAN stockmarkets also ended positively on Monday’s close.

• U.S. equities powered higher after Washington reached a preliminary trade deal with Mexico amid efforts to revamp the existing NAFTA trade agreement. The Dow (+1.0%) closed near its all-time high, lifted by Goldman Sachs and Caterpillar. On the broader market, the S&P 500 and the Nasdaq also extended their winning streak, adding 0.8% and 0.9% respectively.

• Earlier, key European bourses rallied on potentially slower U.S. interest rates increases and upbeat economic data, amid a positive global stockmarket sentiment. The DAX jumped by 1.2%, lifted by stronger-than-expected business confidence and gains in auto stocks, while the CAC expanded by 0.9%. The FTSE was closed for a holiday.

The Day Ahead

• The positive global equity market undertone will continue to drive indexlinked constituents on Bursa Malaysia higher over the near term and to extend the uptrend streak that started in early July.

• Nevertheless, the upsides will also prolong the FBM KLCI’s overbought streak and to also leave it tethering on the expensive side for longer with the forward PERs now closing in on the 17x- 18x range, which are already above its historical 14x-17x PER range. Therefore, we think the near term upsides will remain modest for now due to the toppish valuations. At the same time, the buying strength is still largely insipid with few leads to sustaine the market interest. Therefore, we think the key index will find resistances around the 1,814 and 1,820 levels to be formidable levels to clear for now. The main support remains at the 1,800 points level.

• While we expected the lower liners and broader market shares to stage a revival after their recent indifferent mood, the absence of fresh buying interest continues to dampen their rebound hopes. For now, the downside trend is likely to hold as there are little to suggest that a turnaround is in store.

Company Update

• Chin Well Holdings Bhd’s 4QFY18 net profit jumped 96.4% Y.o.Y to RM18.0 mln, from RM9.2 mln in the same quarter last year, due to increased ASPs, lower administrative, selling and distribution expenses coupled with improved turnover contribution. Revenue for the quarter also gained 6.3% Y.o.Y higher to RM150.0 mln, from RM141.1 mln in 4QFY17.

• Full-year net profit, meanwhile, rose 9.8% Y.o.Y to RM55.9 mln, from RM50.9 mln previously, on improved sales, albeit capped by weaker margins seen in the wire products segment due to sharp increases in raw materials prices and a forex loss of about RM170,000 (vs. FY17 forex gain: RM6.1 mln). Revenue, meanwhile, improved to RM591.3 mln (+13.4% Y.o.Y), from RM521.3 mln last year.

Comments

• Chin Well’s reported earnings were above our expectations – about 10.4% above our full-year estimated net profit of RM50.6 mln, although revenue met our forecast at about 100.6% of full-year revenue estimate of RM588.0 mln. We note that the difference was mainly due to higher-than-expected depreciation and net interest estimates.

• Despite the better performance in earnings, we keep our FY19 forecasts unchanged as we have priced-in its earnings growth prospects amid the rising business costs. As such, FY19 net profit and revenue will remain at RM61.6 mln and RM664.1 mln respectively until we see concrete evidence of the margins expansion, which remain pressured by high wire rod prices. We also take the opportunity to introduce our FY20 estimated net profit and revenue at RM65.0 mln and RM712.0 mln as FY18 comes to an end.

• Consequently, we maintain our BUY recommendation on Chin Well with an unchanged target price of RM1.85 by ascribing an unchanged target PER of 9.0x to its FY19 EPS of 20.6 sen. The target PER is at a small premium to PER of its closest peer, Tong Herr Resources Bhd premised on Chin Well’s higher margins and the positive growth outlook in the fasteners landscape in Europe.

COMPANY BRIEF

• Daiman Development Bhd's major shareholders, who owns a combined 53.4% stake in the company, have proposed a selective capital repayment (SCR) of RM3.00 a share as they seek to take it private. Daiman Holdings Sdn Bhd, which owns 50.01%, and other interested directors, had put forward the corporate exercise to the board of Daiman Development.

• At RM3.00, it is 38.2% over the presuspension price of RM2.17, while the net asset per share is RM5.62. Trading was halted for the announcement on 27th August 2018. The major shareholders would not be entitled to the SCR and repayment.

• On the rationale for the privatisation, Daiman Holdings said the tightening of credit controls by financial institutions, oversupply of residential properties and increasing cost of construction, is leaving the group to operate in a challenging environment. The group might be required to defer its property launched and the gestation period for its property development project would be longer. (The Star Online)

• Taliworks Corporation Bhd's unit, Sungai Harmoni Sdn Bhd has accepted the takeover offer from Pengurusan Air Selangor Sdn Bhd. Sungai Harmoni expects to start negotiations with Air Selangor to finalise the terms and conditions for the termination and settlement agreement and the new operations and maintenance agreement.

• In the event that Taliworks decides to follow the proposed repayment schedule of 10.0% of the recoverable value to be paid upfront and the remaining to be received over nine years at 5.3% accrued interest, the group is then likely to distribute a total of 12.0 sen dividend annually, as compared to the current 8.0 sen per year. (The Star Online)

• BIMB Holdings Bhd’s 2Q2018 net profit climbed 10.5% Y.o.Y to RM150.0 mln, mainly from higher fund based income. Revenue for the quarter increased 5.2% Y.o.Y to RM992.2 mln.

• For 1H2018, cumulative net profit gained 12.3% Y.o.Y to RM322.0 mln. Revenue for the quarter rose 6.9% Y.o.Y to RM1.99 bln. (The Star Online)

• Watta Holdings Bhd has received an Unusual Market Activity query from Bursa Malaysia Securities after its share price rose to a recent record high of 74.5 sen on 27th August 2018. (The Star Online)

• Top Glove Corp Bhd’s Executive Chairman, Tan Sri Lim Wee Chai has made a written requisition for an Extraordinary General Meeting to be convened with the intention to remove Low Chin Guan as a Director with immediate effect. (The Edge Daily)

• Matrix Concepts Holdings Bhd's founder and major shareholder, Datuk Lee Tian Hock, has been re-designated as the Group's Executive Deputy Chairman, effective 1st September 2018. His current position as the group's Managing Director will be taken over by Deputy Managing Director, Ho Kong Soon.

• Separately, the group’s 1QFY19 net profit grew 10.1% Y.o.Y to RM50.2 mln on higher revenue recognition of projects under construction worth RM2.30 bln in gross development value. Revenue for the quarter improved 33.1% Y.o.Y to RM230.0 mln. A first interim dividend of 3.3 sen per share, payable on 10th October 2018, was declared. (The Edge Daily)

• Vertice Bhd has bagged a RM27.4 mln sub-contract work from Kumpulan Liziz Sdn Bhd, who is the main contractor for the proposed Desaru Coast Marina, customs, immigration and quarantine (CIQ) complex and ferry terminal building in Desaru, Johor. The job encompasses dredging works for marina basing and entrance, construction of breakwater at the entrance of the ferry terminal and design, fabricate, supply and installation of steel pontoon system and dolphin piles. (The Edge Daily)

• IOI Properties Group Bhd's 4QFY18 net profit dropped 21.3% Y.o.Y to RM265.0 mln due to reduced contribution from its overseas property projects. Revenue for the quarter slipped 43.6% Y.o.Y to RM674.0 mln.

• For FY18, cumulative net profit declined 14.9% Y.o.Y to RM783.6 mln. Revenue for the year decreased 33.3% Y.o.Y to RM2.79 bln. (The Edge Daily)

• Utusan Melayu (Malaysia) Bhd’s 2Q2018 net loss narrowed to RM2.7 mln, from RM10.7 mln recorded in the previous corresponding quarter on contributions from the tablet project. Revenue for the quarter rose 19.0% Y.o.Y to RM63.9 mln.

• For 1H2018, cumulative net loss narrowed to RM8.5 mln, compared with RM33.5 mln in the previous corresponding period. Revenue for the period added 25.2% Y.o.Y to RM119.4 mln. (The Edge Daily)

• WCT Holdings Bhd's 2Q2018 net profit jumped 106.0% Y.o.Y to RM43.8 mln mainly due to higher construction billings from local infrastructure projects and lower unrealised foreign exchange loss. Revenue for the quarter rose 75.0% Y.o.Y to RM669.9 mln.

• For 1H2018, cumulative net profit improved 51.9% Y.o.Y to RM82.2 mln. Revenue for the period climbed 41.4% Y.o.Y to RM1.21 bln. (The Edge Daily)  

Source: Mplus Research - 28 Aug 2018