Mostly Sideways

• The tabling of Budget 2019 saw muted response on the local bourse as the FBM KLCI (-0.3%) shed most of its previous gains ahead of the mid-week Deepavali break. The lower liners – the FBM Small Cap (-0.8%), FBM Fledgling (-0.4%) and FBM ACE (-1.3%) all retreated, while the broader market closed mixed.

• Market breadth turned negative as decliners outstripped advancers on a ratio of 537-to-334 stocks. Traded volumes fell 29.7% to 2.23 bln shares, amid the more subdued market sentiment.

• On the local bourse, Genting Malaysia (- 93.0 sen) and Genting (-46.0 sen) tanked in response to Budget 2019’s move to raise gaming duties. Malaysia Airport Holdings slipped 64.0 sen on the proposed airport real estate investment trust, while Hong Leong Financial group and Nestle declined 22.0 sen and 20.0 sen respectively. Notable losers on the broader market include KESM Industries (-RM1.02), Ajinomoto (-73.0 sen), MPI (- 40.0 sen), Fraser & Neave (-30.0 sen) and BLD Plantation (-25.0 sen).

• Consumer products stocks like BAT (+RM1.20), Carlsberg (+86.0 sen), Heineken (+72.0 sen) and Dutch Lady (+30.0 sen) advanced with the tobacco company and breweries reacting to the absence of higher taxes in Budget 2019, while United Plantations added 38.0 sen. Key winners on the FBM KLCI were Petronas-related stocks like Petronas Dagangan (+RM1.26), Petronas Chemicals (+22.0 sen) and Petronas Gas (+16.0 sen), while PPB Group and KLCC added 30.0 sen and 24.0 sen respectively.

• Asian benchmark indices edged mostly higher as the Nikkei (+1.1%) advanced, led by gains in in consumer products stocks. The Hang Seng Index added 0.7% after recovering all its intraday losses, but the Shanghai Composite slipped 0.2% after electronic shares fell on concern over launch of new technology board could lead to a wave of new supply of tech firm listings. ASEAN equities closed mixed yesterday.

• Wall Street advanced overnight as the Dow added 0.7% ahead of the outcome of the U.S. mid-term election. On the broader market, the S&P 500 gained 0.6% with all eleven major sectors in the green, while the Nasdaq also closed 0.6% higher.

• Earlier, major European equities – the FTSE (-0.9%), CAC (-0.5%) and DAX (- 0.1%) all edged lower as investors were concern over the outcome of U.S. midterm election. Sentiment was also dampened by Italian Finance Minister’s report that his government hadn’t changed its budget proposal that was rejected by the European Commission.

The Day Ahead

• The knee jerk reaction to the higher gaming taxes and levies not only affected sentiments on Genting and Genting Malaysia, but also to the broader market as the Budget 2019 announcement was deemed as more populist rather that expansionary.

• With the market devoid of positive catalysts, we think the indifferent trend could return to leave the market on a drifting mode again. As it is, stocks on Bursa Malaysia are still adjusting from its steep bout of selloff in October and while the recovery has taken the key index back above the 1,700 points level, a push beyond the level is still elusive as valuations are already fair, thus providing few impetuses for further upsides, in our view.

• Consequently, we think the key index could instead attempt to build up a base at around the 1,700 and 1,720 levels for now. Beyond the above levels, we think the 1,700 points level will serve as a major support, while on the upside the 1,740 level is the next hurdle.

• Meanwhile, the lower liners and broader market shares are also on a recovery trend, but we also see continuing choppiness with bargain hunting activities likely to be met by quick profit taking activities. Still, we think the recovery is likely to sustain after the prolonged downtrend that has seen many lower liners and broader market shares providing value.

COMPANY BRIEF

• Malaysian Resources Corp Bhd (MRCB) and George Kent (Malaysia) Bhd‘s jointventure (JV) company, MRCB George Kent Sdn Bhd has accepted the revised contract sum of RM11.86 bln to build the Light Rail Transit Line 3 (LRT 3) project from Bandar Utama in Petaling Jaya to Johan Setia in Klang. The contract sum includes a contingency or provisional sum of RM400.0 mln, which, if not utilised, will reduce the contract sum.

• The revised contract value represents a deeper discount to the RM16.6 bln announced on 17th October. To recap, JVco had announced in October that the LRT3 project will continue, but at a lower cost of RM16.6 bln — almost half or 47.0% of the earlier cost of RM31.45 bln in July. The implementation concept of the project was also remodelled from a project delivery partner regime to a fixed price contract regime. (The Star Online)
• GETS Global Bhd's external auditor has flagged the existence of material uncertainty in the group’s FY18 financial statements that could cast significant doubt on the group’s ability to continue as a going concern.

• The transportation services company said that its auditor had drawn attention to the group's net loss of RM12.3 mln in FY18 and that its current liabilities exceeded its current assets by RM20.6 mln. Consequently, the auditor has expressed its unmodified opinion on the results for FY18. (The Edge Daily)

• PRG Holdings Bhd is planning to subscribe to up to 29.9% in Singaporelisted Capital World Ltd, which is engaged in property development activities in Malaysia, in a bid to participate in the latter’s flagship project in Johor Baru. The project features a 4.0 mln sq. ft. integrated development comprising a shopping mall, hotel, serviced suites and serviced apartments.

• PRG has inked a non-binding Memorandum of Understanding (MoU) with Capital World for the proposed investment on the terms and subject to the conditions to be set out in a definite agreement. (The Star Online)

• China Ouhua Winery Holdings Ltd, which has made several announcements on the date to receive the transfer of land title ownership from a local authority in China after buying a 40-acre plot there, announced that the transfer should be completed in six months.

• In the meantime, the group is still waiting for the examination procedure and the approval on the state-owned land by the State-owned Assets Supervision and Administration Commission, and the decision of the District Mayor Administration Meeting before the land title ownership can be transferred. (The Edge Daily)

• Scicom (MSC) Bhd has been named as a second defendant in a lawsuit by Tawasol Al-Sharq Marketing Services, which is seeking US$416,930 in relation to alleged non-payment of Tawasol invoices after Scicom had ceased to use Tawasol’s services. Scicom was served with a writ of summons and statement of claim filed at the Singapore High Court on 29th July 2018, but believes that there is no basis to the claim against the company after seeking legal advice from its solicitors. (The Edge Daily)

• Axiata Group Bhd is aborting its dividend reinvestment scheme (DRS) on the electable portion of its interim dividend due to softer equity market. The DRS will be replaced with a full cash dividend payout, which would offer shareholders better value at this point in time. Subsequently, the entitled shareholders of Axiata will receive the entire interim dividend of 5.0 sen per share, payable on 12th November, 2018. (The Edge Daily)

• CSC Steel Holdings Bhd has terminated its plans to acquire certain assets of YKGI Holdings Bhd without giving any reasons for the termination. (The Edge Daily)

• Stone Master Corporation Bhd has appointed Datuk Sri Chew Han Ching as its Chief Executive Officer (CEO) and Executive Director (ED) effective immediately. The latter is replacing Stone Master’s previous ED and acting CEO Fathi Ridzuan Ahmad Fauzi, who resigned on 5th June after only four months in the post. Chew has over 35 years of experience in the property development and construction industry.

• Meanwhile, Datuk Eii Ching Siew @ Yii Ching Siew was re-designated from his position as the ED-cum-president of Stone Master to be the alternate director to Chew Han Ching. (The Edge Daily)  

Source: Mplus Research - 7 Nov 2018