Few Available Catalyst

• The FBM KLCI (-0.3%) extended its losses, closing below the 1,800 psychological level on the back of profittaking activities in selected heavyweights. On the other hand, all of the lower liners - the FBM Fledgling, FBM ACE and FBM Small Cap closed higher by 0.6%, 0.9% and 0.4% respectively, alongside most of the broader market players.

• Market breadth turned slightly positive as gainers edged losers on a ratio of 393-to- 384 stocks. Traded volumes also rebounded 13.1 % to 1.86 bln shares on bargain-hunting activities in the lower liners.

• Among the heaviest-hit key-index constituents were Axiata (-21.0 sen), Hong Leong Financial Group (-18.0 sen), Kuala Lumpur Kepong (-10.0 sen), Petronas Gas (-8.0 sen) and Dialog (-5.0 sen). Other decliners were Panasonic Manufacturing (-52.0 sen), BAT (-28.0 sen), Scientex (-21.0 sen), Malaysian Pacific Industries (-18.0 sen) and Amway (-15.0 sen).

• On a more positive note, United Plantations (+46.0 sen), Petron Malaysia Refining (+30.0 sen), Dufu Technology (+15.0 sen), Riverview Rubber (+15.0 sen) and Hengyuan Refining (+13.0 sen) advanced. Significant blue-chip gainers, meanwhile, include Petronas Dagangan (+28.0 sen), Nestle (+10.0 sen), Genting (+5.0 sen), IOI Corporation (+4.0 sen) and KLCC (+4.0 sen).

• Key regional benchmark indices closed mixed on Tuesday ahead of the Federal Reserve meeting. The Hang Seng Index was closed for public holidays. The Nikkei (+0.9%) marked its seventh-straight sessions’ of gains, boosted by semicon related companies. The Shanghai Composite, however, weakened by 0.6%, while ASEAN stockmarkets closed mostly higher.

• Key U.S. indices were mostly downward pressured, weighed down by expectations of a tougher stance on trade policies amid Washington’s ongoing trade war with China. The Dow (-0.3%) slipped into the red, while the S&P 500 erased 0.1% to 2,915.6 points. The Nasdaq (+0.2%), however, was unfazed and continued to trade higher as Amazon and Apple counters rallied.

• Earlier, major European blue-chip gauge rallied, driven by gains in mining and oilrelated companies. The FTSE rose 0.7% as investors digested fresh corporate news, while the CAC and DAX gained 0.1% and 0.2% respectively.

The Day Ahead

• There was little reprieve for stocks on Bursa Malaysia as the unresolved trade issue between the U.S. and China continues to weigh on market sentiments. With the trade impasse continuing, coupled with the lack of domestic catalysts, we think the downside pressure is likely to sustain for longer.

• This means that local stocks could endure another day of mixed-to-lower trading conditions with few stocks making significant headway. At the same time, market participation remains anaemic and this trend is likely to persist until there is renewed market confidence. With the 1,800 points level giving way, the 1,790 support is now in play and if it gives way as well, the next support is at 1,780. The immediate hurdle is at 1,800, followed by the 1,803 level.  Despite the generally insipid market condition, the lower liners are staging a commendable recovery from its bout of oversold. There are some renewed bargain hunting activites on some beaten down stocks and this trend looks to continue over the near term that could help to further shore up the Small Cap, Fledgling and ACE indices.

Company Update

• V.S. Industry Bhd (VSI) posted a 4.4% Y.o.Y marginal increase in 4QFY18 net profit to RM38.4 mln, from RM36.8 mln last year, capped by a series of one-off items like: i) loss on disposal of subsidiary, ii) impairment loss on properties, and iii) share of loss attributed to its associates. Revenue inched higher to RM1.01 bln (+2.8% Y.o.Y), from RM983.4 mln a year ago.

• Full-year net profit, meanwhile, fell 3.6% Y.o.Y to RM150.8 mln, from RM156.3 mln in the FY17, despite recording stronger turnover of RM4.09 bln, from RM3.28 bln a year ago. The weaker earnings were mainly due to lower margins as a result of higher input costs and initial setup and testing costs in the earlier quarters.

• The group has also declared a fourth interim dividend of 0.6 sen per share, payable on 31st October 2018, together with a final dividend of 0.6 sen per share. The payment date of the final dividend will be announced in due course. Cumulative dividend per share to-date is 4.7 sen, compared to 5.9 sen last year.

• The group’s adjusted earnings (excluding aforementioned one-off items) of RM159.4 mln were within estimates, accounting to 103.5% of our full-year net profit forecast of RM154.0 mln, while revenue was fully accounted for at 100.0% of our forecast revenue. Comments

• Even though the reported earnings were within our estimates, we adjust our FY19 net profit and revenue forecast to RM222.7 mln (+11.4%) and RM4.85 bln (- 2.4%) respectively as we expect improved contribution from VSI’s Malaysian-unit, albeit slightly capped by extended weakness expected from VSIG, the group’s manufacturing arm in China. We also introduce our FY20 net profit and revenue estimates of RM259.9mln and RM5.43 bln respectively.

• With the positive earnings growth outlook, we maintain our BUY recommendation on VSI with a higher target price of RM2.00 (from RM1.80 previously) on stronger potential margins and additional box-built orders from key clients. The target price is arrived by ascribing an unchanged target PER of 17.0x to its revised FY19 diluted EPS of 11.7 sen. The ascribed target PER, however, remains at a premium to its closest competitor, SKP Resources, which we believe is justified in view of the group’s leading position in Malaysia’s EMS industry.

• AWC Bhd has announced that its proposed acquisition of a 60.0% equity stake in Trackwork & Supplies Sdn Bhd for RM43.5 mln and the proposed diversification of AWC’s principal activities to include rail-related works have been approved by its shareholders in the Extraordinary General Meeting (EGM) held on 25th September 2018.The group expects the acquisition to be completed by early October this year. The contract also comes with a net profit guarantee of RM20.0 mln for FY18 and FY19. • Trackwork has achieved about RM7.6 mln in net profit as at June 2018 and the group is confident that it will achieve the RM8.0 mln required in FY18, which ends in September.

Comments

• We are sanguine on the proposed acquisition as it will strengthen AWC’s earnings visibility over the long run and help reduce its reliance on government concessions.

• Moving forward, we expect AWC to consolidate the earnings from Trackwork, assuming the latter achieved the profit guarantees in FY18 and FY19. We maintain our BUY recommendation on AWC with a higher target price of RM1.20 (from RM0.90) by ascribing a slightly higher target PER of 12.0x on FY19's EPS of 10.2 sen. The higher target PER is inline with the increase in the share price of its closest competitor, UEM Edgenta Bhd and is also at a discount to the latter due to AWC’s smaller market capitalisation.

COMPANY BRIEF

• Tune Plato Ventures Sdn Bhd, a joint venture between Tune Protect Group Bhd and ECM Libra Financial Group Bhd, has acquired a 50.0% stake in Malaysian home-sharing platform SubHome Management Sdn Bhd. SubHome manages and markets a portfolio of home rentals and offers hotel-like services to vacation and business travellers looking for alternative, value-for-money lodging.

• The SubHome platform offers a turnkey solution with a complete suite of services ranging from assistance with refurbishment, listing, marketing, ongoing property maintenance and guest enquiries. (The Star Online)

• Bursa Malaysia Bhd has instructed the entire board of directors at Sumatec Resources Bhd to attend a training programme after the company failed to undertake a proper assessment of its financial accounts. Sumatec is now required to review and ensure the adequacy and effectiveness of its financial reporting function and carry out a limited review on its quarterly report submissions. (The Star Online)

• Deleum Bhd has bagged two contracts from Petronas Carigali Sdn Bhd for the provision of integrated corrosion solution and one contract from Sarawak Shell Bhd and Sabah Shell Petroleum Co Ltd for oilfield services. The value of the contracts will depend on the agreed rates and the work order issued. (The Edge Daily)

• Pestech International Bhd has bagged a RM399.0 mln sub-contract from Syarikat Pembenaan Yeoh Tiong Lay Sdn Bhd to undertake engineering, procurement, construction and maintenance works relating to the electrification system for the electrified double track from Gemas to Johor Baru. The project's date of completion is projected for 1st April 2021. (The Edge Daily)

• OpenSys (M) Bhd will be rolling out more than 500 units of OKI Cash Recycling ATMs (CRMs) worth RM36.0 mln at Public Bank, Bank Islam, RHB Bank and other major banks in 3Q2018. Banks can typically save between 25.0% and 30.0% in both capital expenditure and annual operational costs with the CRMs. (The Edge Daily)

• KUB Malaysia Bhd is acquiring a piece of leasehold land measuring 31,015 sq.m. in Klang for RM25.0 mln for its business expansion from Universal Lubricants Factory Zinol (M) Sdn Bhd. The acquisition is expected to be completed by 4Q2018. (The Edge Daily)

• Ann Joo Resources Bhd has received an additional award of RM25.2 mln from the Kuala Lumpur Regional Centre for Arbitration's Arbitral Tribunal. The arbitration respondent — Tangshan Iron & Steel International Engineering Technology Co Ltdhas to pay RM24.1 mln for an additional cost of production or losses due to the late start-up of the Pulverized Coal Injection for the period between October 2011 and March 2012.

• The remaining RM1.1 mln of the award is for the additional cost of production or losses due to the late start-up of the Top Pressure Recovery Turbines for the period between October 2011 and August 2012. (The Edge Daily)

• Malayan Bulk Carriers Bhd (Maybulk) received overwhelming interest from shareholders to buy the shipping group’s 21.2% equity stake in Singapore-listed PACC Offshore Services Holdings Ltd at 65 sen per share. The block of 386.4 mln shares that are offered to its shareholders had an oversubscription of 18.0%. (The Edge Daily)

• Tan Chong Motor Holdings Bhd is taking up a 24.5% stake in Comit Communication Technologies (M) Sdn Bhd (CCT) which owns a piece of leasehold industrial land in Section 13, Petaling Jaya from Warisan TC Holdings Bhd for RM13.2 mln. The joint venture provides an opportunity for CCT to explore and expand its property investments portfolio. (The Edge Daily)  

Source: Mplus Research - 26 Sept 2018