Weakness Still Prevails

• The FBM KLCI (-0.1%) trended lower for the fifth straight session after the key index endured a volatile trading session. The lower liners also edged mostly lower as the FBM Small Cap and FBM Fledgling slipped 0.02% and 0.3% respectively, while the broader market closed on a mixed note.

• Market breadth stayed negative as losers outpaced winners on a ratio of 469-to- 345 stocks, while 413 stocks closed unchanged. Traded volumes fell 31.4% to 1.80 bln shares as investors opt to remain in the sidelines amid the volatile market conditions.

• Petronas Gas (-44.0 sen) topped the local bourse decliners list, followed by MISC (- 10.0 sen), KLK (-8.0 sen), DIGI (-6.0 sen) and Hartalega (-6.0 sen). Significant losers on the broader market were Panasonic (-22.0 sen), Aeon Credit (-16.0sen), Apex Healthcare (-10.0 sen), Dufu Technology (-9.0 sen) and Allianz (-8.0 sen).

• In contrast, key winners on the broader market include BAT (+RM1.48), United Plantations (+50.0 sen), Fraser & Neave (+48.0 sen), Amway (+30.0 sen) and Tong Herr Resources (+14.0 sen). Meanwhile, Axiata (+12.0 sen), Petronas Dagangan (+8.0 sen), Hong Leong Financial Group (+4.0 sen), Hong Leong Bank (+2.0 sen) and Petronas Chemicals (+2.0 sen) led the FBM KLCI advancers list.

• Asian benchmark indices remain in the red as the Nikkei fell 1.3% as the recent global market volatility sent demand for the safe haven Japanese Yen higher. The Hang Seng Index declined 0.1%, but the Shanghai Composite added 0.2% after China’s central bank allowed its currency to depreciate against the U.S. Dollar. ASEAN stockmarkets, meanwhile, closed mostly lower on Tuesday.

• U.S. stockmarkets trended mostly lower overnight after enduring a choppy trading session after the International Monetary Fund trimmed global growth forecast for next year. The Dow fell 0.2%, while the S&P 500 closed 0.1% lower. The Nasdaq, however, managed to add 0.03%, snapping a three day losing streak, lifted by the rebound in technology shares

• Earlier, European indices – the FTSE (+0.1%), CAC (+0.4%) and DAX (+0.3%), all rebounded after recovering all their intraday losses. Gains were underpinned by the depreciation of Euro Currency against the Greenback, coupled with the pullback in U.S. bond yields.

The Day Ahead

• The key index was once again supported by local funds as the selling continues to dominate trades yesterday, thus cushioning the losses. However, there remains no change to the immediate market outlook with the dour trend likely to continue for now after the government hinted of new taxes in the upcoming Budget 2019 that will spook market players further.

• Under the prevailing market environment, we expect the downside bias to sustain for longer, which is also in line with the weakness in many global indices due to the fresh concerns over the global economic growth. Still, we expect local funds to continue providing support to selected index linked stocks to limit the downside to 1,770 level support, which is followed by the 1,760 level. The resistances, meanwhile, are at 1,780 and 1,790 respectively.

• The cautious market environment and the lack of positive leads will also keep a lid on the performance of the lower liners and broader market shares, although the recent pullback has left its indices tethering on oversold region. As it is, we think the weak market following would also leave little room for the stocks in the FBM Small Cap, ACE and Fledgling indices to mount a meaningful recovery for now.

Company Update

• Mitrajaya Holdings Bhd has bagged a RM99.9 mln contract from International Medical University, Malaysia (IMU) to build a seven-storey private hospital at Bukit Jalil. The contract will commence on 15th October 2018, with completion by 15th January 2021. (The Edge Daily)

Comments

• With the inclusion of the aforementioned contract, Mitrajaya has secured a total of RM202.7 mln worth of major construction contracts YTD, making up to 67.6% of our construction orderbook replenishment of RM300.0 mln for 2018. Moving forward, its unbilled construction orderbook of approximately RM1.00 bln will underpin its construction segment’s earnings over the next two years.

• With the orderbook replenishment falling within our estimates, we leave our earnings forecast unchanged and we maintain our BUY recommendation with an unchanged target price of RM0.50. 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.

COMPANY BRIEF

• Nestle (Malaysia) Bhd is planning to sell its chilled dairy and manufacturing businesses to French dairy group Lactalis for a cash consideration of RM155.3 mln.

• Under the agreement, the sale will include the distribution, marketing, promotion and sale of chilled dairy products in Malaysia, Singapore and Brunei, as well as the manufacturing of chilled dairy products and cold sauces, and packing of milk powder at the Petaling Jaya factory.

• Nestle expects a disposal gain of about RM27.0 mln (or 11.0 sen EPS) split over the years. The sale is expected to be completed by July 2019. (The Edge Daily)

• Hibiscus Petroleum Bhd has purchased a 50.0% interest in two offshore oilfields in the United Kingdom for US$37.5 mln (RM155.9 mln). The purchase is from Caldera Petroleum (UK) Ltd for a 50.0% participating interest in Block 15/13a and Block 15/13b under Production License P198. The blocks are located in the United Kingdom sector of the North Sea, approximately 250km northeast of Aberdeen, Scotland.

• The proposed acquisition, should the parties obtained the written consent of the United Kingdom Oil and Gas Authority for the assignment of interests and the transfer of operatorship to AHUK, is expected to be completed by 16th October, 2018. (The Edge Daily)

• Pestech International Bhd was awarded a sub-contract signalling system works worth RM75.0 mln for the Gemas-JohorBahru electrified double-track project, from a consortium formed by SIPP Rail Sdn Bhd and Syarikat Pembenaan Yeoh Tiong Lay Sdn Bhd.

• The sub-contract was awarded to an unincorporated consortium Ansaldo STS Pestech Consortium, which consists of Pestech and Ansaldo STS Malaysia Sdn Bhd.

• Pestech’s portion of works amounts to RM75.0 mln out of the total fixed subcontract price of RM339.0 mln, including optional items worth RM19.8 mln. (The Star Online)

• Kelington Group Bhd has clinched three overseas contracts worth a combined RM101.0 mln.

• Two of the aforementioned contracts involve installation and commissioning of exhaust systems in Singapore. The first contract spans from October 2018 to November 2020, while the second contract period is between September 2018 and August 2019.

• The third contract involves the supply, installation and commissioning of a chemical delivery systems for Zhonghuan Advanced Semiconductor Materials Co Ltd in China from September this year and February 2019. (The Star Online)

• Visdynamics Holdings Bhd's external auditors, Messrs Adam & Co have tendered its resignation, effective 4th October 2018, after Visdynamics and the latter failed to reach a consensus on the proposed increase to the audit fees for FY18. (The Star Online)

• Luster Industries Bhd is proposing to undertake a private placement to raise RM17.0 mln to fund the expenses forits property development projects and working capital for manufacturing business.

• The proposed placement entails 197.6 mln new shares, representing about 10.0% of the group’s issued shares at an issue price to be determined later to a third party investor.

• The group plans to utilise RM7.0 mln of proceeds for property development expenditure, while RM9.9 mln will be slated for Luster’s manufacturing business’ working capital. The remainder will be for expenses of the corporate exercise. Luster expects to complete the private placement by the 1Q2019. (The Edge Daily)  

Source: Mplus Research - 10 Oct 2018