Tight Range Trading

• Tracking the sharp recovery on Wall Street overnight, the FBM KLCI (+0.2%) extended its gains after the key index gapped-up and hovered in the positive territory for the entire trading session yesterday. Likewise, the lower liners – the FBM Small Cap (+1.8%), FBM Fledgling (+0.2%) and FBM ACE (+1.3%), all advanced, while the Financial Services (-0.1%) and Transportation & logistics (- 0.2%) sectors underperformed the positive broader market.

• Market breadth turned positive as advancers outstripped decliners on a ratio of 2-to-1 stocks, while 366 stocks closed unchanged. Traded volumes added 32.7% to 2.03 bln shares, lifted by bargain hunting activities in recently beaten down stocks.

• Half of the key index constituents advanced, led by Genting Malaysia (+13.0 sen), followed by Nestle (+10.0 sen), Petronas Gas (+8.0 sen), Digi (+6.0 sen) and IOI Corporation (+5.0 sen). Meanwhile, Carlsberg (+50.0 sen), BAT (+36.0 sen), MPI (+30.0 sen), Aeon Credit (+20.0 sen) and KESM Industries (+20.0 sen) topped the broader market winners list.

• Meanwhile, notable decliners on the broader include Westports (-11.0 sen), IJM Plantations (-10.0 sen), Top Glove (- 10.0 sen), UEM Edgenta (-9.0 sen) and UOA Development (-9.0 sen). On the local bourse, banking giants like Hong Leong Bank (-26.0 sen), Hong Leong Financial Group (-22.0 sen) and RHB Bank (-4.0 sen) fell, while MISC and PPB Group shed 3.0 sen and 2.0 sen respectively.

• Asia benchmark indices extended their gains as the Nikkei jumped 1.3%, buoyed by the recovery on Wall Street. The Hang Seng Index rose 0.1% after recovering all its intraday losses, while the Shanghai Composite added 0.6%. ASEAN stockmarkets, meanwhile, closed mostly positive yesterday.

• U.S. stockmarkets retreated overnight as the Dow fell 0.4% after the mixed bag of corporate earnings could not offset the lingering concerns over rising interest rates. On the broader market, the S&P 500 slipped 0.03%, dragged down by the basic materials sector (-0.8%), while the Nasdaq finished 0.04% lower.

• Despite opening higher, major European indices – the FTSE (-0.1%), CAC (-0.5%) and DAX (-0.5%) all erased their intraday gains to close in the negative territory. The weakness stemmed from the poor Eurozone’s vehicle sales data that fell 23.4% Y.o.Y in September 2018, leading to a selloff in automotive stocks like Peugeot SA (-4.1%), Renault SA (-2.8%) and Volkswagen AG (-0.8%).

The Day Ahead

• Although the key index managed to recover yesterday as anticipated, the upsides were milder-than-expected as the buying interest remained largely insipid, while the market interest was also selective.

• With the buying interest remaining largely indifferent, we also think stocks of Bursa Malaysia will make little headway over the near term. The pullback in U.S. stocks overnight will also add a layer of uncertainty to Malaysian stocks. Therefore, we see the market staying rangebound and trend within a narrow range near the 1,740 level for now. The other near term support and resistance points is at 1,730 and 1,750 respectively.

• After making decent headway yesterday, we think the lower liners will remain on an upward trajectory as they continue to adjust from oversold. However, their upsides could be tempered by bouts of profit taking activities that will cap the upsides, in our view.

COMPANY BRIEF

• Dagang Nexchange Bhd (DNeX) was awarded two contracts totalling US$2.8 mln (RM11.6) mln to repair submarine cables laid in the Philippines and Indonesian water, from Indonesian submarine cable system services provider, Pt Bina Nusantara Perkasa (BNP). Under the agreement, DNeX is expected to carry out the works for cable ship KDDI Pacific Link for 29 days, with an option for extension of up to 35 days. (The Star Online)

• Kumpulan Perangsang Selangor Bhd secured a RM162.5 mln contract from Pengurusan Air Selangor Sdn Bhd to supply and deliver chemicals. Aqua-Flo will provide chemicals to water treatment plants in Selangor, Kuala Lumpur and Putrajaya for a two-year period, beginning from 1st November 2018. (The Star Online)

• Malaysian Resources Corp Bhd (MRCB) and George Kent (Malaysia) Bhd‘s jointventure company, MRCB George Kent Sdn Bhd has announced that the government has agreed to continue with the Light Rail Transit Line 3 (LRT3) project at a cost of RM16.6 bln, which is slightly more than half of the earlier cost of RM31.5 bln in July. The revised costs include land acquisition costs, interests during construction and other costs.

• Meanwhile, the implementation of the project will be remodelled from a project delivery partner (PDP) regime to a fixed price contract regime. (The Edge Daily)
• Gas Malaysia Bhd has successfully commenced its second gas engine cogeneration plant operated with its JV partner Tokyo Gas Engineering Solutions Corp. The JVco, Gas Malaysia Energy Advance Sdn Bhd (GMEA) is jointlyowned by Gas Malaysia and Tokyo Gas on a ratio of 66:34 respectively.

• The plant has begun supplying electricity and hot water to a manufacturing plant belonging to air conditioner company Panasonic Appliances Air-Conditioning Malaysia Sdn Bhd. (The Edge Daily)

• Top Glove Corp Bhd expects its unit, Aspion Sdn Bhd to meet its net profit projection of RM80.0 mln within the next four-to-seven years. The net profit of Aspion for FY18, which is estimated to be within a range of RM20.0 mln to RM30.0 mln, however, is reportedly lesser than the original sum expected of RM80.0 mln.

• Moving forward, the group is confident that Aspion is on track to meet the group's expectations by delivering the net profit projection of RM80.0 mln in the coming years with the help of technology and the experience the group has in turning around loss-making factories in the past. (The Edge Daily)

• WCT Holdings Bhd have agreed to an out-of-court settlement in relation to their court battle over the lease renewal of AEON Mall Bukit Tinggi.

• Both parties had executed a supplemental lease agreement to further renew the lease period for another six years commencing 24th November 2017. This is subject to options to renew for a further two terms, comprising six years and three years respectively. (The Edge Daily)

• Press Metal Aluminium Holdings Bhd is planning to acquire a 50.0% stake in Australian-based Company, Japan Alumina Associates (Australia) Pty Ltd (JAA) worth A$250.0 (or RM739.0 mln) in cash, to secure cheaper alumina and strengthen its market position in Southeast Asia. The proposed acquisition will be made via its 80.0%-owned subsidiary Press Metal Bintulu Sdn Bhd.

• JAA is reported to have a 10.0% participation interest in the Worsley Alumina Unincorporated Joint-Venture which owns and operates the Worsley Alumina Project - one of the world’s largest, longest life and lowest cost alumina producers.

• Consequently, the proposed acquisition will provide the group access to 5.0% of the annual production of the Worsley Alumina Project, amounting to approximately 230,000 tonnes of alumina, a primary raw material for smelting aluminium, allowing the group to effectively hedge the supply of alumina, and also to gain additional technical know-how in the alumina refinery business. The acquisition will be fully funded via external bank borrowings, and is expected to be completed in 1Q2019. (The Star Online)  

Source: Mplus Research - 18 Oct 2018