• The FBM KLCI (+0.4%) recovered all its previous session losses as the key index (+1.8% W.o.W) recorded its first weekly gain in six weeks on fresh hopes over trade talks between U.S. and China. The lower liners – the FBM Small Cap (+2.5%), FBM Fledgling (+1.4%) and FBM ACE (+2.8%), all powered higher, while the broader market closed in the green.

• Market breadth stayed positive as winners thumped losers on a ratio of 744- to-204 stocks. Traded volumes rose 45.1% to 3.16 bln shares, boosted by the positive market sentiment.

• Two-thirds of the FBM KLCI constituents rose, led by Hong Leong Financial Group (+RM1.06), followed by Hap Seng (+15.0 sen), Petronas Gas (+14.0 sen), Tenaga (+14.0 sen) and Petronas Chemicals (+12.0 sen). Consumer products stocks like BAT (+RM2.20), Ajinomoto(+RM1.14), Heineken (+84.0 sen) and Fraser & Neave (+62.0 sen) anchored the winners on the broader market, while KESM Industries jumped RM1.30 higher.

• In contrast, among the biggest decliners on the broader market were Ark Resources (-15.5 sen), Malaysian Sugar Mills (-15.0 sen), Dutch Lady (-10.0 sen) Inari (-9.0 sen) and Genting Plantations (- 8.0 sen). Meanwhile, Genting (-20.0 sen), KLK (-8.0 sen), RHB Bank (-6.0 sen), Malaysia Airport Holdings (-4.0 sen) and IHH (-4.0 sen) were the key index’s biggest decliners.

• Asia benchmark indices trended sharply higher amid the potential positive developments over U.S.-China trade deal. The Nikkei jumped 2.6% higher to close above the 22,000 psychological level. The Shanghai Composite soared 2.7% with the Yuan appreciating against theGreenback, while the Hang Seng (+4.2%) surged to record its biggest weekly gains in three-and-half years. ASEAN equities closed sharply higher last Friday.

• U.S. stocks staged a pullback from a three-day rebound as investors digested U.S. President Donald Trump remarks on a potential trade agreement with China. Both the Dow and S&P 500 slipped 0.4% and 0.6% respectively with weakness dragged down by poor Apple Inc’s sales forecast.

• Earlier, European edged mostly higher, taking cue from the positive sentiment in Asian stockmarkets. Both the CAC and DAX added 0.3% and 0.4% respectively after the Euro Currency retreated against the Greenback. The FTSE (-0.3%), however, extended its losses after erasing all its intraday gains on selloff in defensive shares.

THE DAY AHEAD

• With Budget 2019 deemed as largely neutral, the near term market direction is likely to be dictated by the ongoing global and local events with the unresolved trade issue to be foremost on market players’ minds. However, shares of local gaming and Numbers Forecast Operators, as well as airlines, may see adverse moves after the government raised levies and taxes on their operations. This could weigh-on the key index’s performance over the near term.

• On balance, we think the key index will continue to recover from its bout of oversold, albeit we think choppiness from profit taking activities after the recent gains will also prevail that could limit the near term upsides. On the upside, we see the key index finding significant hurdle at around the 1,720 level, with the 1,740 level the next resistance. The supportsare at 1,710 and 1,700 respectively.

• We think the lower liners and broader market shares could see increased tentativeness after their recent gains as we expect profit taking activities to setin. Therefore, the near term upsides could also be capped for now as retail players look for fresh market catalysts.

COMPANY UPDATE

• SLP Resources Bhd’s (SLP) 3Q2018 net profit rose 32.1% Y.o.Y to RM6.2 mln, from RM4.7 mln in the previous corresponding quarter, helped by a higher turnover volume and margins due to stronger economies of scale. Revenue was also higher at RM52.2 mln (+13.8% Y.o.Y), from RM45.9 mln last year.

• Cumulatively 9M2018 net profit jumped 24.6% Y.o.Y to RM18.0 mln, from RM14.4 mln in the same period a year ago, lifted by the improvements in both the local and export sales and higher production volume. Revenue, meanwhile, grew 4.2% Y.o.Y to RM140.7 mln vs. RM135.1 mln in 9M2017.

Comments

• The group’s earnings came in below our expectations, accounting to 65.6% of our previous full year estimated net profit of RM27.4 mln, while revenue was short of RM63.0 mln (or 5.9%) of our full-year revenue of RM203.8 mln. The difference was mainly due to lower-than-expected sales turnover and slight variation in our tax assumptions.

• We trimmed our FY18-FY19 net profit estimates by 12.6% and 9.7% respectively after adopting a more conservative approach on ASPs and slightly higher tax expense assumptions. Revenue, meanwhile, was also lowered to RM187.2(-8.1%) and RM212.5 (-6.6%).

• We maintain our BUY recommendation on SLP, albeit with a lower target price of RM1.05 (from RM1.55 previously) by ascribing an unchanged target PER of 16.0x to its forecast FY19 EPS of 8.7 sen, as we remain positive on SLP’s strong financial metrics, underpinned by consistent bottomline growth and double-digit margins as well as a solid balance sheet.

• We think SLP valuations are undemanding, following the lackluster share price performance in the recent months despite still strong earnings momentum. The assigned PER is notably higher than its closest peer, Thong Guan Industries Bhd which is justifiable due to SLP’s stronger growth prospects and superior double-digit margins.

COMPANY BRIEF

• YKGI Holdings Bhd will exit the coated coil business in Peninsular Malaysia after selling off two of its coated coil business and related assets as a going concern for RM125.0 mln. The proposed sale will allow the company to focus on its downstream business in East Malaysia, while proceeds from the disposal will be used to pare its borrowings.

• Separately, the group also plans to undertake a capital reduction exercise at a quantum to be fixed at a later date, in a bid to rationalise the group’s financial position. (The Edge Daily)

• Hengyuan Refining Company Bhd has approved an additional capital expenditure of US$76.0 mln (or RM318.0 mln) for its Mogas project in order to comply with future fuel specification changes. The additional capex for the Euro4M Mogas project is provided to expedite long lead and additional equipment for a larger scope of activities, and to upgrade the project to deliver refining capability for the production of both Euro4M and future Euro5M Mogas specifications when required.

• Following the additional capex, total investment in the Euro4M Mogas project has increased to US$211.0 mln (or RM882.0 mln), from US$135.0 mln (or RM565.0 mln) in June 2017. The upgraded Euro4M Mogas project is targeted for completion in 1Q2020.

• Further, Hengyuan has also announced that it has completed its planned 10- week major turnaround (MTA) on 21st October 2018, ahead of schedule and below the stipulated budget by US$1.5 mln. Moving forward, the group remain positive that it is in a favourable position to undertake a larger scope of activities and establish a viable timeline for the project, which will significantly boost the efficiency and in turn its long-term profitability. (The Sun Daily)

• The Government has announced its intention to take over the Eastern Dispersal Link (EDL) from Malaysian Resources Corp Bhd (MRCB) for RM1.3 bln, which lower than its RM1.55 bln valuation.

• To recap, toll collections at the EDL have been abolished since 1st January 2018 pending the disposal of the highway by MRCB Southern Link, a unit of MRCB. The expressway has an outstanding debt of RM1.02 bln. (The Sun Daily)

Source: Mplus Research - 5 Nov 2018