A Quick Rebound Is Possible

• The FBM KLCI (-0.3%) slipped into the negative territory as investors booked profits ahead of the long weekend holidays. Most of the lower liners also descended further, with the exception of the FBM Fledgling (+0.1%). The broader market players were equally bearish, with nine-of-ten sectors in the red.

• Market breadth was negative as decliners beat advancers by 274 stocks, although traded volumes rose slightly by 4.5% to 2.69 bln stocks amid holiday-led profit taking activities.

• Giant rubber glove maker Hartalega (- 28.0 sen) led the key-index decliners, alongside Dialog (-10.0 sen), Press Metal (-9.0 sen), Digi (-8.0 sen) and IHH Healthcare (-8.0 sen). Consumer products leaders like Fraser & Neave (-34.0 sen) and Dutch Lady (-24.0 sen) underperformed its broader market peers, alongside BAT (-RM2.50), Supermax (- 43.0 sen), Chin Teck Plantations (-29.0 sen) and Riverview Rubber (-23.0 sen).

• On the winners’ list, Kobay Technology (+22.0 sen), APM Automotive (+17.0 sen), Dufu Technology (+16.0 sen) Elsoft Research (+16.0 sen) and Guan Chong Bhd (+16.0 sen) rallied on Wednesday. Significant index-linked outperformers, meanwhile, were Hong Leong Financial Group (+56.0 sen), Petronas Gas (+16.0 sen), Petronas Dagangan (+14.0 sen), Nestle (+10.0 sen) and PPB Group (+8.0 sen).

• Key regional benchmark bourses finished mostly positive, although Chinese stockmarkets remained in the red amid lingering concerns on the U.S.-Sino trade conflicts. The Shanghai Composite retreated for the second consecutive session, weighed down by a weaker Yuan. Meanwhile, both the Nikkei and Hang Seng Index added 0.2%, alongside majority of the ASEAN stockmarkets.

• Wall Street extended its four-day winning streak, boosted by upbeat GDP data, stronger energy prices and the tech rally. The Dow and the Nasdaq grew 0.2% and 1.0% respectively, while the S&P 500 (+0.6%) finished above the 2,900 benchmark level for the first time in history, lifted by Amazon and Alphabet on positive earnings growth prospects.

• European bourses ended mostly higher on Thursday, on the back of the prevailing positive sentiment in U.S. stockmarkets and easing geopolitical concerns. Both the DAX and the CAC expanded by 0.3%, while the FTSE (-0.7%) slipped into the red, weighed down by a stronger Pound.

The Day Ahead

• The key index found support at the 1,820 psychological level in yesterday’s pullback, which was seen as mild at best and hardly dented the overall market environment and the FBM KLCI is still toppish as a consequence.

• Going into the last trading day ahead of the National Day holiday, we think there will be attempts to shore up the market in tandem with the positive overnight performance of many global indices that continues to be buoyed by the combination of the firmer economic environment, slower pace of interest rate increases and few developments on the trade spat between the U.S and China.

• Still, we think the upsides will be tempered by the largely insipid market following as well as the lack of domestic news to firm up the buying interest. Hence, we see the recent high of 1,827 serving as the major hurdle, followed by the 1,830 level. The supports, meanwhile, are at 1,810 and 1,800 respectively.

• The lower liners and broader market shares continue to endure a wretched environment with the selling still very pronounced. As it is, there are few leads for retail players to follow and this will continue to be the case as there are also few recovery signs as yet.

Company Update

• Econpile Holdings Bhd’s 4QFY18 net profit fell 6.7% Y.o.Y to RM19.5 mln, dragged down by higher contribution from piling and foundation works for infrastructure projects that yields lower margins. Revenue for the quarter, however, climbed 21.9% Y.o.Y to RM192.3 mln.

• For FY18, cumulative net profit added 7.8% Y.o.Y to RM87.1 mln. Revenue for the year expanded 25.2% Y.o.Y to RM728.4 mln. The reported earnings came slightly below our expectations, amounting to 95.6% of our FY18 estimate of RM91.1 mln. The reported revenue, however, came within our expectations, amounting to 103.8% of our full-year forecast of RM702.0 mln. The variance in its bottom line was mainly due to higher recognition of infrastructure projects that yields lower margins.

• Separately, Econpile has bagged a RM34.1 mln contract from YTL Corp Bhd to undertake bored piling and pile cap works for a portion of the Gemas-Johor Baru electrified double track rail project.

Comments

• The inclusion of the abovementioned contract brings Econpile’s orderbook replenishment to RM156.1 mln, making up to 26.0% of our orderbook replenishment assumption of RM600.0 mln for FY19. Hence, we made no changes to our orderbook replenishment assumption.

• With the reported earnings coming slightly below our estimates, we trimmed our net profit forecast by 1.2% and 0.7% to RM90.6 mln and RM95.6 mln for FY19 and FY20 respectively to reflect the lower margins from piling and foundation works for infrastructure projects.

• Consequently, maintained our HOLD recommendation on Econpile with an unchanged target price at RM0.90 by ascribing a target PER of 13.0x (unchanged) to its FY19 EPS of 6.8 sen. We continue to like Econpile as a niche construction company, specializing in piling and foundation works, backed by its solid unbilled ordebook of RM1.10 bln that will comfortably sustain its earnings over the next two years.

• Kimlun Corporation Bhd’s 2Q2018 net profit slipped 33.4% Y.o.Y to RM9.8 mln, mainly due to higher recognition of lower margin construction projects, coupled with higher depreciation charges. Revenue for the quarter, however, added 11.9% Y.o.Y to RM218.0 mln.

• For 1H2018, cumulative net profit fell 25.7% Y.o.Y to RM22.4 mln. Revenue for the period, however, gained 20.3% Y.o.Y to RM439.0 mln.

• The reported earnings came below our expectations, accounting to only 36.3% of our previous full year estimated net profit of RM61.9 mln. Meanwhile, the reported revenue came slightly below our expectation, accounting to 46.7% of full year revenue forecast of RM940.2 mln. The variance in its earnings was due to higher depreciation charges, coupled with lower margins recorded by the construction segment.

Comments

• After the reported earnings coming in below our estimates, we trimmed our net earnings forecast by 25.8% and 15.1% to RM48.1 mln and RM55.0 mln for 2018 and 2019 respectively, to account for the lower margins in both the construction and manufacturing segments. We rolled over our valuation metrics to 2019 and we downgraded Kimlun to HOLD (from Buy) with a lower target price of RM1.55 (from RM1.85).

• Our target price is derived from ascribing an unchanged target PER of 10.0x to its rolled-over 2019 fully diluted construction earnings and PER of 6.0x (unchanged) to its fully diluted manufacturing earnings, while its property development segment’s valuation remains unchanged at 0.6x its BV due to its relatively small-scale development projects.

COMPANY BRIEF

• Telekom Malaysia Bhd’s 2Q2018 net profit fell 52.0% Y.o.Y to RM101.9 mln, dragged down by rising competition in the fixed broadband market and the mandatory lowering of prices. Revenue for the quarter slipped 1.5% Y.o.Y to RM2.94 bln.

• For 1H2018, cumulative net profit declined 41.2% Y.o.Y to RM259.1 mln. Revenue for the period decreased 2.7% Y.o.Y to RM5.78 bln. (The Star Online)

• Destini Bhd has secured a US$5.2 mln (RM21.2 mln) contract from Posco Daewoo Corp (PDC) for the provision of tubular running services (TRS) in Myanmar. The award of this contract reinforces Destini’s position as a global TRS provider. Currently, Destini is commissioning two other land and offshore exploration related contracts. (The Star Online)

• Sentoria Group Bhd bagged two design and build contracts that have a combined value of RM124.8 mln. The group’s wholly-owned subsidiary, Sentoria Bina Sdn Bhd has accepted these letters of award from HA Properties Sdn Bhd.

• The first contract is to design and build 420 units of single-storey terrace houses in Kuala Kuantan, Pahang, for a contract sum of RM52.8 mln. The second one involves design and build of 630 units of single-storey terrace houses in Penor, Pahang, for a contract sum of RM72.0 mln. These contracts are due for completion by 28th August 2020. (The Edge Daily)

• Dayang Enterprise Holdings Bhd has secured a five-year contract from JX Nippon Oil & Gas Exploration (Malaysia) Ltd for the provision of maintenance, construction and modification services throughout Malaysia. The contract will expire on 16th July 2023. The value of the contract is based on work orders issued by Nippon throughout the contract term at a fixed schedule of rate. (The Edge Daily)

• CIMB Group Holdings Bhd's 2Q2018 net profit rose 80.0% Y.o.Y to RM1.98 bln, helped by asset disposal gains and lower allowance for loan impairment losses. Revenue rose 12.2% Y.o.Y to RM4.86 bln.

• For 1H2018, cumulative net profit climbed 44.3% Y.o.Y to RM3.29 bln. Revenue for the period improved 5.5% Y.o.Y to RM9.17 bln. (The Edge daily)

• Taliworks Corp Bhd has proposed a bonus issue via the issuance of up to 967.6 mln bonus shares on the basis of every two bonus shares-for-every three existing share. The bonus issue will be wholly capitalised from its share premium account at 20 sen per bonus share.

• Given the maximum scenario, the group’s enlarged issued share capital after the bonus issue will comprise 2.42 bln shares. The group expects the bonus issue to be completed in 2H2018. (The Edge Daily)

• YTL Corp Bhd’s 4QFY18 net loss stood at RM43.4 mln vs. a net profit of RM229.3 mln registered in the previous corresponding quarter, mainly due to higher losses from the management services and others division. Revenue for the quarter, however, rose 6.5% Y.o.Y to RM4.15 bln.

• For FY18, cumulative net profit slipped 55.5% Y.o.Y to RM361.9 mln. Revenue for the year, however, gained 7.7% Y.o.Y to RM15.86 bln. An interim dividend of four sen per share, payable on 13th November 2018, was declared. (The Edge Daily)

• Pos Malaysia Bhd’s 4QFY18 net profit plunged 86.1% Y.o.Y to RM5.0 mln due to lower revenue from its postal services segment, coupled with increased costs. Revenue for the quarter fell 3.5% Y.o.Y to RM590.5 mln. (The Edge Daily)

• Genting Malaysia Bhd’s 2Q2018 net profit jumped 104.2% Y.o.Y to RM395.7 mln, aided by higher contribution from its Malaysian operations. Revenue for the quarter increased 5.7% Y.o.Y to RM2.42 bln.

• For 1H2018, cumulate net profit increased 45.6% Y.o.Y to RM753.9 mln. Revenue for the period grew 6.8% Y.o.Y to RM4.82 bln. (The Edge Daily)

• UMW Holdings Bhd’s 2Q2018 net profit stood at RM124.4 mln vs. a net loss of RM209.3 mln recorded in the previous corresponding quarter, boosted byincrease in sales arising from the tax– free period. Revenue for the quarter grew 5.9% Y.o.Y to RM2.92 bln.

• For 1H2018, cumulative net profit stood at RM198.5 mln, compared with a net loss of RM189.1 mln recorded in the previous corresponding period. Revenue for the period, however, fell 2.2% Y.o.Y to RM5.33 bln. (The Edge Daily)

• PPB Group Bhd’s 2Q2018 net profit surged 226.7% Y.o.Y to RM304.5 mln, on higher profit contribution from its 18.5%-owned associate, Wilmar International Ltd. Revenue for the quarter grew 2.8% Y.o.Y to RM1.08 bln.

• For 1H2018, cumulative net profit rose 14.5% Y.o.Y to RM494.0 mln. Revenue for the period gained 6.9% Y.o.Y to RM2.23 bln. The group declared an interim dividend of 8.0 sen per share, payable on 4th October 2018. (The Edge Daily)

• Boustead Holdings Bhd’s 2Q2018 net loss stood at RM27.6 mln vs. a net profit of RM52.5 mln registered in the previous corresponding quarter on lower contributions from the plantation, heavy industries and property divisions, as well as allocation to non-controlling interests and perpetual sukuk holders. Revenue for the quarter fell marginally by 0.5% Y.o.Y to RM2.37 bln.

• For 1H2018, cumulative net loss stood at RM21.5 mln vs. a net profit of RM48.5 mln recorded in the previous corresponding period. Revenue for period fell 2.9% Y.o.Y to RM4.62 bln. A second interim dividend of one sen per share was declared. (The Edge Daily)  

Source: Mplus Research - 30 Aug 2018