FBM KLCI Overbought Again

• The FBM KLCI (+0.8%) maintained its upward trajectory for the second-straight day, following easing geopolitical and trade concerns as investors cheered he U.S. and Mexico’s recent trade deal. All of the lower liners, however, were splashed in red. The broader market, meanwhile, finished mostly in the positive territory, with the exception of the Consumer Products, Construction and Properties sub-sectors.

• Market breadth was tepid as losers maintained the upper-hand against the winners on a ratio of 534-to-408 stocks. Traded volumes also fell 6.6% to 2.57 bln on the back of rotational play in the lower liners.

• Major blue-chip advancers on Tuesday include Nestle (+70.0 sen), Hong Leong Bank (+40.0 sen), Petronas Chemicals (+20.0 sen), Malaysia Airports (+17.0 sen) and Axiata (+17.0 sen). Other gainers, meanwhile, were Chin Teck Plantations (+39.0 sen), KESM Industries (+38.0 sen), Apex Healthcare (+32.0 sen) and Malaysian Pacific Industries (+32.0 sen). Daiman Development also jumped 65.0 sen after receiving a privatisation offer.

• On the losing team, broader market decliners were sin-stocks like BAT (-80.0 sen) and Heineken Malaysia (-50.0 sen), followed by Plenitude (-19.0 sen), Ideal United Bintang International (-13.0 sen) and MB World Group (-12.0 sen). The only four key-index laggards were PPB Group (-6.0 sen), Genting (-2.0 sen), IOI Corporation (-1.0 sen) and Sime Darby (- 1.0 sen).

• The majority of the regional benchmark indices closed higher on sustained buying-support buoyed by the positive sentiment spilled over from Wall Street a day earlier. The Shanghai Composite (- 0.1%), however, bucked the general uptrend and slipped into the red, weighed down by losses in consumer staples and financial-related sectors. The Nikkei and Hang Seng Index notched gains of 0.1% and 0.3% respectively, while ASEAN stockmarkets finished largely in the green.

• U.S. stockmarkets scaled fresh record closings amid a global rally, following optimism on easing trade conflicts between U.S. and its trading partners, and strong consumer confidence levels. Tech-dominated indices like the Nasdaq (+0.2%) and the S&P 500 (+0.03%) eked out gains, while the Dow finished 0.1% higher, lifted by gains in Apple.

• Key European indices ended mostly higher, despite a volatile trading session, due to the spike in the Euro, which could pressure the earnings of multinational companies. The FTSE notched 0.5% gains, supported by the strength in British miners, while the CAC added 0.1% to 5,485.0 points. The DAX (-0.1%), however, fell slightly on the back of mild profit-taking activities.

The Day Ahead

• Although yesterday’s lift has allowed the key index to surpass the psychological 1,820 level, the key index has veered into the overbought territory again, suggesting that a pullback is due. At the same time, market valuations are increasingly toppish at 17.7x and 16.4x for 2018 and 2019 respectively, which are already above its historical average.

• After the near 10% gain over the past two months, the key index’s performance has already exceeded all expectations amid the selected institutional support which we think is overdone, considering the still fragile earnings prospect. Therefore, we think a consolidation is due over the near term as the buying momentum is waning with the key index potentially pulling back to the 1,800 points level. The resistances are at the 1,830-1,840 levels.

• Unlike the index linked stocks, the lower liners and broader market shares are still enduring a wretched period as the buying interest has mostly evaporated after a firm recovery in July. It would also appear that the follow through buying interest has dissipated amid the lack of new leads and there is little to suggest a reversal as yet. Therefore, the immediate outlook for the lower liners and broader market shares points to further weakness.

Company Update

• AWC Bhd posted a 25.5% Y.o.Y drop in its 4QFY18 net profit to RM4.4 mln, from RM5.9 mln previously, dragged down by projects delays in certain engineering and environment contracts as well as cost overruns which has resulted to a fall in its bottomline margins to 4.7%, from 6.9% in 4QFY17. Revenue, however, gained 9.5% Y.o.Y to RM94.2 mln, from RM86.0 mln, mainly due to higher billings from the IFM segment. The group has also proposed a final dividend of 0.5 sen a share with the entitlement and payment dates to be announced later.

• Consequently, full-year net profit fell marginally to RM21.4 mln (-2.9% Y.o.Y), from RM22.0 mln earlier, although revenue added 2.5% Y.o.Y to RM304.0 mln, from RM296.5 mln last year.

Comments

• The reported net profit was within our expectations as its net profit reached 101.6% of our full-year net profit forecast of RM21.0 mln. However, revenue outperformed our expectations, accounting for 113.3% of our estimated revenue of RM268.3 mln, mainly attributed to higher-than-expected billings from the STREAM and engineering contracts.

• We maintain our BUY call on AWC with an unchanged target price of RM0.90 by ascribing an unchanged target PER of 10.6x to AWC’s unchanged FY19 EPS of 8.5 sen, as the group’s fundamentals remain sound given its ability to generate positive long-term earnings from its sizable orderbook of more than RM1.0 bln and solid balance sheet strength. Our target price remains at a discount to AWC’s nearest competitor, UEM Edgenta Bhd due to the former’s smaller market capitalisation.

• Protasco Bhd’s 2Q2018 net loss stood at RM1.0 mln vs. a net profit of RM7.9 mln in the previous corresponding quarter, dragged down by the weakness in five of its six business segments. Revenue for the quarter, however, added 10.2% Y.o.Y to RM242.2 mln.

• For 1H2018, cumulative net loss stood at RM6.1 mln vs. a net profit of RM44.2 mln recorded in the previous corresponding period. Revenue for the quarter, however, rose 13.6% Y.o.Y to RM399.7 mln. The reported earnings fell short of our previous 2018 net earnings forecast of RM26.9 mln, whilst the reported revenue also came below our expectations, amounting to only 39.7% of our full year estimate of RM1.01 bln.

Comments

• With the reported earnings coming below our estimates, we slashed our earnings forecast by 30.4% and 11.5% to RM20.2 mln and RM25.7 mln for 2018 and 2019 respectively to reflect the slower execution in both the construction and maintenance segments. We maintain our HOLD recommendation on Protasco, but with a lower target price at RM0.50 (from RM0.62).

• We arrive our target price on a sum-ofparts basis by ascribing an unchanged target PER of 8.0x to its 2019 fully diluted construction earnings due to the uncertainty surrounding the general construction sector as well as a target PER of 8.0x (unchanged) to its fully diluted 2019 concession and engineering services’ earnings. Its education and trading units’ valuations remain pegged at target PERs of 6.0x respectively due to their smaller scale businesses, while its property development division’s valuation is derived from ascribing an unchanged 0.6x to its BV.

• Mitrajaya Holdings Bhd’s 2Q2018 net profit fell 21.8% Y.o.Y to RM10.3 mln, dragged down by lower contribution from the construction segment as several projects are at the initial stage of construction. Revenue for the quarter declined 32.1% Y.o.Y to RM206.8 mln.

• For 1H2018, cumulative net profit decreased 29.6% Y.o.Y to RM29.5 mln. Revenue for the period dipped 20.8% Y.o.Y to RM471.8 mln. The reported earnings came below our expectations, amounting to 37.7% of our 2018 net profit forecast of RM78.4 mln, while revenue for the period came slightly below our expectations, accounting to 46.6% of our RM1.10 bln forecast. The difference in its reported earnings is mainly due to lower contribution from the construction segment.

Comments

• We trimmed our earnings forecast for 2018 and 2019 by 19.9% and 20.7% to RM63.2 mln and RM63.3 mln respectively to account for the slower execution of construction works, coupled with the compressed construction margins amid the increasing overhead cost. We maintain HOLD recommendation on Mitrajaya, but with a lower target price of RM0.50 (from RM0.54).

• Our target price was derived from sum-ofparts valuation as we ascribed a target PER of 8.0x (unchanged) to its fully diluted 2019 construction earnings, while its local and overseas property development units are valued at an unchanged 0.8x their respective book values.

• OCK Group Bhd’s 2Q2018 net profit declined 29.4% Y.o.Y to RM4.2 mln, mainly due to a lower contribution from the telecommunication network services, green energy and mechanical & electrical engineering segments. Revenue for the quarter fell 3.1% Y.o.Y to RM97.5 mln, on lower contribution from the telecommunication network services segment.

• For 1H2018, cumulative net profit decreased 12.6% Y.o.Y to RM9.4 mln. Revenue for the period contracted 5.6% Y.o.Y to RM213.0 mln. Although the reported earnings and revenue only amounted to 34.4% and 39.1% of our full year forecast at RM27.2 mln and RM545.3 mln respectively, we deem the aforementioned figures to be in line as OCK’s first quarter results traditionally make up about 30.0%-40.0% of its full year earnings.

Comments

• With the 1H2018’s results coming largelyu within our expectations, we leave our earnings forecast unchanged and we maintain our BUY recommendation on OCK with an unchanged target price of RM0.90.

• We adopt a sum-of-parts (SOP) approach as we valued its telecommunication network services and green energy & power solutions business segments on a discounted cash flow approach (key assumptions include a WACC of 9.0%, 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 13.0x target PER to both its fully-diluted trading and mechanical & electrical engineering services businesses, based on their potential earnings contribution in 2019.

COMPANY BRIEF

• IJM Corp Bhd’s 1QFY19 net profit sank 48.2% Y.o.Y to RM62.8 mln, impacted by unrealised foreign exchange losses of RM71.0 mln. Revenue for the quarter declined marginally by 1.2% Y.o.Y to RM1.44 bln. (The Star Online)

• FGV Holdings Bhd’s 2Q2018 net loss stood at RM23.2 mln vs. a net profit of RM37.3 mln, as crude palm oil (CPO) prices fell and fresh fruit bunches (FFB) output declined. Revenue for the quarter fell 18.4% Y.o.Y to RM3.43 bln.

• For 1H2018, cumulative net loss stood at RM21.9 mln compared with net profit of RM39.0 mln recorded in the previous corresponding period. Revenue for the period decreased 17.4% Y.o.Y to RM7.04 bln.

• Separately, FGV has sought legal advice on the possible recourse on the RM100.0 mln worth of bad debts, direct awards of procurement contracts and also the critical workers shortage which resulted in RM170.0 mln losses. FGV have officially appointed forensic investigators in January 2018 and had probed into the open credit lines, poor purchasing trading practices and poor palm oil sales that have resulted in bad debts. The probe also found that direct awards of procurement contracts had breached the best practice. (The Star Online)

• QL Resources Bhd has earmarked RM300.0 mln for capital expenditure (capex) in the current financial ending 31st March 2019 (FY19) to build more poultry farms, fish processing factories, aquaculture ponds and expand its FamilyMart convenience store operations. QL Resources is targeting an additional 50 FamilyMart stores, bringing the total to 89 in FY19 from 39 in the Klang Valley currently. (The Edge Daily)

• Elsoft Research Bhd has proposed to undertake a 1-for-5 bonus issue and 2- for-1 share split at an entitlement date to be determined later. The group is offering a bonus issue of up to 56.4 mln and shall be capitalised from the share premium account. The proposed share split will be implemented upon completion of the proposed bonus issue. (The Edge Daily)

• MMS Ventures Bhd is planning to undertake a bonus issue on the basis of one bonus share-for-every four existing shares held on an entitlement date to be fixed. The proposed exercise will involve up to 40.8 mln new shares and will be capitalised up to RM4.1 mln from the company's share premium account, based on a par value of 10 sen per bonus share. The group expects both proposals to be completed and implemented by 4Q2018.

• Separately, MMS Venture’s 2Q2018 net profit sank 69.7% Y.o.Y to RM2.8 mln, on lower orders received from smart devices customers. Revenue for the quarter slumped 58.7% Y.o.Y to RM12.2 mln.

• For 1H2018, cumulative net profit declined 48.7% Y.o.Y to RM6.8 mln. Revenue for the period retreated 36.6% Y.o.Y to RM28.2 mln. A first interim dividend of 1.0 sen per share, payable 18th October 2018 was declared. (The Edge Daily)

• Affin Bank Bhd's 2Q2018 net profit fell 38.0% Y.o.Y to RM73.3 mln, mainly due to higher allowance for credit impairment losses of RM91.9 mln. Revenue for the quarter, however, rose 31.5% Y.o.Y to RM494.2 mln.

• For 1H2018, cumulative net profit increased 3.0% Y.o.Y to RM214.8 mln. Revenue for the period grew 39.1% Y.o.Y to RM970.8 mln. (The Edge Daily)

• Karex Bhd’s 4QFY18 net profit contracted 49.8% Y.o.Y to RM1.5 mln due to rising production costs which outpaced adjustments to its selling prices. Revenue for the quarter, however, inched up 1.9% Y.o.Y to RM93.4 mln.

• For FY18, cumulative net profit plunged 63.9% Y.o.Y to RM10.1 mln. Revenue for the year, however, rose 12.9% Y.o.Y to RM408.0 mln. (The Edge Daily)

• Watta Holding Bhd, whose share price jumped to a record high of 74.5 sen on 27th August 2018, has reported that its Deputy Group Executive Chairman and Chief Executive Officer, Datuk Lee Foo San was exploring certain corporate proposals previously, which had been aborted. This is in response to an unusual market activity (UMA) query from the bourse regulator. (The Edge Daily)  

Source: Mplus Research - 29 Aug 2018