Likely Positive End To The Week

• Tracking the positive developments on Wall Street overnight, the FBM KLCI (+0.2%) extended its gains after lingering in the positive territory for the entire trading session yesterday. The lower liners – the FBM Small Cap (+0.4%), FBM Fledgling (+0.2%) and FBM ACE (+0.2%), all advanced, while the broader market closed mostly higher.

• Market breadth, however, turned negative as decliners pipped advancers on a ratio of 412-to-404 stocks. Traded volumes fell 3.4% to 1.94 bln shares on signs of profit taking activities.

• More than half of the key index constituents rose, led by Hong Leong Financial Group (+40.0 sen), Hong Leong Bank (+14.0 sen), Genting Malaysia (+7.0 sen), Petronas Chemicals (+7.0 sen) and KLK (+6.0 sen). Scientex (+34.0 sen) topped the broader market winners list after reporting a strong set of quarterly earnings, followed by Chin Teck Plantations (+16.0 sen), Bursa Malaysia (+14.0 sen), Country View (+12.0 sen) and Heineken (+12.0 sen).

• On the other side of the trade, BAT (-40.0 sen), MI Equipment (-22.0 sen), UMW Holdings (-17.0 sen), Central Industrial Corporation (-16.5 sen) and MSM (-15.0 sen) retreated on the broader market. Among the biggest decliners on the key local bourse were Malaysia Airport Holdings (-12.0 sen), Petronas Dagangan (-10.0 sen), Telekom (-7.0 sen), Petronas Gas (-6.0 sen) and Public Bank (-4.0 sen).

• Asian benchmark indices closed on a mixed note after enduring a choppy trading session as the Nikkei (+0.01%) recorded its fifth straight session of gain. The Hang Seng Index rose 0.3%, but the Shanghai Composite fell 0.1% as investors remain cautious on the latest round of trade tariffsd. ASEAN stockmarkets, meanwhile, closed mixed yesterday.

• U.S. stockmarkets extended their gains to close at fresh record high levels overnight as the Dow jumped 1.0% higher, boosted by a series of strong economic data, ranging from jobless claims, manufacturing data and existing home sales. On the broader market, the S&P 500 added 0.8% with ten major sectors in the green, while the Nasdaq (+1.0%) closed above the 8,000 psychological level.

• Earlier, major European indices – the FTSE (+0.5%), CAC (+1.1%) and DAX (+0.9%) all closed on a positive note, shrugging off the Sino-U.S. trade spat. The positivity was mainly anchored by gains in banking and mining stocks.

The Day Ahead

• Malaysian stocks is likely to continue its uptrend over the near term, benefitting from the positive undertone of global stock indices that have cast aside the escalating trade dispute between the U.S. and China. While we maintain our view that the trade dispute will determine the global market’s direction, the current lull will provide some reprieve to allow stocks to make further headway.

• Still, we think that the near term upsides on Malaysian stocks are limited as most market players are still adopting a cautious stance and unwilling to take up too many open positions. As it is, the recent gains have been attained on thinner volumes, indicating that market players are not yet ready to fully commit to the market. Under the prevailing environment, we think that the buying will remain selective which could again place a lid on the upsides that could also be punctuated by bouts of profit taking. We expect the 1,810 level to serve as the immediate resistance for the FBM KLCI, which is followed by the 1,820 level. The supports are at 1,800 and 1,790 respectively.

• The broader market shares are also continuing their recovery trend after a bout of oversold, but the buying interest is also still tentative as market players are still wary of the market’s direction. Similar to the index-linked stocks, we see stocks on the FBM Small Cap, Fledgling and ACE Market indices taking small positive strides over the near term.

Company Update

• AWC Bhd has filed a lawsuit against BUCG (M) Sdn Bhd, the main contractor in the project for Tetuan Lumayan Indah Sdn Bhd for failing to settle RM2.1 mln in outstanding payment for subcontract works involving a block of serviced apartments and a 55-storey hotel on Jalan Conlay.

• To recap, BUCG had awarded a RM10.2 mln contract to AWC to carry out and complete the entire plumbing services installation works of the project on 14th November 2012.

• Consequently, AWC has filed a writ of summons together with the statement of claim against BUCG after it failed to settle the unpaid portion of the debt of RM2.1 mln even though AWC had issued letters of demand.

Comments

• We have not included the aforementioned lawsuit claims as nothing is set in stone at the current juncture. However, should AWC be successful in its claims against BUCG, the amount recoverable is positive for AWC’s earnings although it is unlikely to significantly impact the group’s bottomline.

• As such, we maintain our BUY recommendation on AWC, but with a higher target price of RM1.00 (from RM0.90) by ascribing an unchanged target PER of 10.6x to a higher FY19 EPS of 9.4 sen, after taking into account stronger billings contributions, coupled with improved margins amid ongoing cost-savings initiatives. Our target price remains at a discount to AWC’s nearest competitor, UEM Edgenta Bhd due to the former’s smaller market capitalisation.

• Risk to our recommendation and target price include slower-than-expected orderbook replenishment rate and project delays due to the cyclical risks inherent to the construction industry, which could lead to unforeseen cost increases and reputational damage. Escalating utility cost and increase in the prices of consumables could also compress the margins of the IFM contracts, while any fluctuation in the cost of raw materials could also impact AWC’s margins in the already saturated HVAC market.

COMPANY BRIEF

• Scientex Bhd 4QFY18 net profit jumped 22.0% Y.o.Y to RM88.3 mln, from RM72.1 mln a year earlier, due to improved sales from its manufacturing division, including stretch film production. Revenue also increased to RM733.2 mln (+13.5% Y.o.Y) compared to RM646.1 mln a year ago. The group has also proposed a final dividend of 10.0 sen a share, totalling 20.0 sen a share for the full year.

• For the full year, net profit was higher at RM289.8 mln, from RM255.9 mln, while revenue rose to RM2.63 bln, from RM2.4 0bln last year. (The Star Online)

• Malaysia Smelting Corp Bhd (MSC) is planning to lease two pieces of land totalling 423 ac. in Klian Intan, Perak, owned by Menteri Besar Inc (Perak), for dumping overburden, tailings and slime arising from ongoing tin-mining activities at its open-pit tin mine. This is in-line with the group's overall effort to enhance its market position as one of the world's largest producers of tin metal.

• The group has entered into a Memorandum of Understanding (MoU) with MB Inc to lease the two parcels of lands measuring 100 ac. and 323 ac. respectively, which are located adjacent to Rahman Hydraulic's existing tin mining leases in Klian Intan.

• Moving forward, the MoU could pave the way for the group to commence strategic negotiations on expanding its tin mining leases as well as to undertake any other joint efforts with MB Inc. (The Edge Daily)

• Pos Malaysia Bhd has accepted Commodity Murabahah Term Financing facilities of RM500.0 mln from Maybank Islamic Bhd, which will be used to finance the group’s investment in capital expansion programmes.

• The principal of the facilities shall be repaid by 22 equal quarterly payments with one final payment for the remaining balance, to commence 18 months from the date of disbursement of the facilities. The borrowings are expected to increase the gearing of the group from 0.2x to 0.6x times. (The Edge Daily)

• Wong Engineering Corp Bhd’s (WEC) 3QFY18 net profit dropped 47.5% Y.o.Y to RM1.6 mln, from RM3.1 mln in the previous corresponding quarter, dragged down by unfavourable product mix, higher input costs and fluctuations in foreign exchange. Revenue, however, was 55.1% Y.o.Y higher at RM18.4 mln, from RM11.9 mln.

• On a more positive note, the group’s cumulative 9MFY18 net profit doubled to RM7.7 mln, from RM3.6 mln in 9MFY17, while revenue gained 48.6% Y.o.Y to RM44.5 mln, from RM29.9 mln a year earlier.

• Meanwhile, the group has also proposed a 1-for-4 bonus issue of up to 22.9 mln shares. (The Edge Daily)

• Dufu Technology Corp Bhd has proposed a one-for-two bonus issue involving the issuance of up to 87.7 mln bonus shares, to enhance the marketability and trading liquidity of its shares.

• The group's issued shares will increase to up to 263.2 mln shares after the bonus issue and expects the plan to be completed by 4Q2018. (The Edge Daily)

• Selangor Properties Bhd's 3QFY18 net profit surged 70.2% Y.o.Y to RM33.2 mln, from RM19.5 mln a year ago, mainly due to higher forex gains of RM16.3 mln. Revenue for the quarter also grew 23.5% Y.o.Y to RM39.4 mln, from RM31.9 mln in the same quarter last year. (The Star Online)

• SCGM Bhd’s 1QFY19 net profit plunged 81.0% Y.o.Y to RM1.1 mln, from RM5.6, due to higher resin prices, finance costs, electricity costs, depreciation charges, labour costs and forex losses. Revenue, however, climbed to RM55.8 mln compared to RM53.7 mln last year. The group declared a first interim dividend of 0.5 sen per share, payable on 25th October 2018.

• Moving forward, the group is targeting new export markets as the group’s production capacity is set to increase with the commissioning of the new Kulai factory in December 2018.  Inclusive of the Klang Valley plant, the new Kulai plant will increase the group’s extrusion capacity by 64.9% to 67.6 mln kg per year, from 41.0 mln. (The Star Online)

• Pan Malaysia Corp Bhd is teaming up with a Singaporean artisan baker and food store, Baker & Cook Pte Ltd to diversify its business to include food and beverage (F&B) retail outlets.

• Both parties are to form a joint-venture (JV) company on a 50:50 basis and will carry on the franchise business of retail F&B outlets operated and conducted under the trade names of "Baker & Cook" and "Plank Sourdough Pizza". Baker & Cook and Pan Malaysia will each inject RM750,000 to subscribe for 50,000 shares each in the JV company.

• Under the JV, Baker & Cook will be responsible for managing the day-today operations, while Pan Malaysia will handle concession and sub-franchisee agreements for the business to be operated at Metrojaya Mid Valley Megamall and Corus Hotel Kuala Lumpur. (The Edge Daily)  

Source: Mplus Research - 21 Sept 2018