A Rebound Setting In

• Tracking the rebound in regional stockmarkets, the FBM KLCI closed in the green despite coming off its session high – led by the strength in selected heavyweights. Among the lower liners, the FBM Small Cap and the FBM Fledgling improved slightly, while the FBM Ace flatlined. The majority of the broader market also ended on an upbeat tone on Tuesday.

• Market breadth turned positive as winners bucked the losers on a ratio of 420-to-358 stocks, while traded volumes also rose by 6.0% to 1.96 bln shares on bargain-hunting activities in selected stocks.

• Plantation giants like Kuala Lumpur Kepong (+8.0 sen) and IOI Corporation (+7.0 sen) were among the Main Board gainers, followed by Tenaga Nasional (+20.0 sen), Hong Leong Financial Group(+12.0 sen) and MISC (+12.0 sen). Broader market winners, meanwhile, comprise of Fraser & Neave (+58.0 sen), Dutch Lady (+50.0 sen), AirAsia (+20.0 sen), Kuchai Development (+18.0 sen) and Lysaght Galvanised Steel (+17.0 sen).

• On the flip side, Ajinomoto (-60.0 sen), United Plantations (-58.0 sen), Vitrox (- 26.0 sen), BAT (-20.0 sen) and Bursa Malaysia (-20.0 sen) underperformed the rest of the broader market. Significant decliners were Nestle (-RM1.50), Petronas Gas (-12.0 sen), Maxis (-9.0 sen), Genting (-7.0 sen) and IHH Healthcare (-7.0 sen).

• Chinese stockmarkets rebounded on expectations of increased market support from the government as the Shanghai Composite rose 1.0% to 2568.1 points. The Nikkei (+1.5%) also ended positivelyamid better-than-expected employment data. The Hang Seng index (-0.9%), however, pared Monday’s gains and closed in the red as the trade war between U.S. and China continues to escalate. The ASEAN stockmarkets, meanwhile, closed mostly higher on Tuesday.

• All of the major U.S. indices logged gains, lifted by bargain-hunting activities in FAANG stocks and easing trade worries after President Donald Trump signalled his readiness to ease trade tensions with China. The Dow (+1.8%), the S&P 500 (+1.6%) and the Nasdaq (+1.6%) all rallied as consumer confidence surged to an alltime high.

• European equities, however, finished mostly lower, with the exception of U.K. stocks as the FTSE (+0.1%) extended its gains for the second-straight day, boosted by oil titan BP after the latter posted strong third quarter earnings and weaker Pound. On the flip side, weakerthan-expected economic data and mixed corporate earnings caused the DAX (- 0.4%) and the CAC (-0.2%) to close lower at Tuesday’s closing bell. THE DAY AHEAD

• The key index mounted an overdue recovery yesterday, albeit it closed with just marginal gains as quick profit taking actions that limited its gains. Still, the mild rebound may signal that the key index may have found a near-term bottom after it slipped more than 3.5% over the past two weeks that has left it oversold.

• We expect the recovery to continue as Malaysian stocks aim to put a positive end to October, a month which has endured significant volatility amid the rising trade tensions, weaker globaleconomic growth prognosis and threats of further tightening of monetary policies.

• On balance, we think the upsides may be limited for the time being as the buying interest may still be tentative after the recent weakness has left many market players retaining a cautious stance. Nevertheless, the recovery could mark the end of the recent weakness spell and could allow the FBM KLCI to mount a more sustainable recovery from oversold to re-challenge the 1,690 level, before making a pass at the psychological 1,700 points level. On the downside, the support is at the 1,670-1,680 levels.

• We also think the lower liners and broader market shares will stage a recovery as they look to recover from their deeply oversold condition. As with the main liners, however, the upsides could also be measured as retail players are likely to adopt quick profit taking and selling into strength actions for the time being.

COMPANY UPDATE

• Kimlun Corporation Bhd has secured a RM164.0 mln contract awarded by Sunway Iskandar Sdn Bhd for a mixed development project at Medini Iskandar, Johor. The construction work is expected to be completed by end-June 2021.

Comments

• The above-mentioned contract brings Kimlun’s newly secured construction orderbook YTD at RM361.6 mln, representing 72.3% of our construction segment’s orderbook replenishment target of RM500.0 mln for 2018. With the contracts falling within our orderbook assumption of RM500.0 mln in the construction segment, we leave our earnings forecast unchanged. We also maintain our BUY recommendation on Kimlun with an unchanged target price of RM1.55. Our target price is derived from ascribing an unchanged target PER of 10.0x to its 2019 fully diluted construction earnings and PER of 6.0x (unchanged) to its fully diluted manufacturing earnings, while its property development segment’s valuation remains unchanged at 0.6x its BV due to its relatively small-scale development projects.

COMPANY BRIEF

• Caring Pharmacy Group Bhd’s 1QFY19 net profit gained 25.8% Y.o.Y to RM4.1 mln as sales strengthened with higher advertising and promotion income earned. Revenue for the quarter grew 14.1% Y.o.Y to RM142.9 mln. Caring added three new high street outlets during the quarter under review. As of end-August 2018, it has 118 community pharmacies. (The Star Online)

• Mexter Technology Bhd has proposed a new name for the company to reflect its expanding business in the healthcare industry. This follows Mexter’s 70.0% owned subsidiary, LYC Living Sdn Bhd entering into a conditional consultancy and project management agreement with LYC Venture Sdn Bhd for the development of a RM558.0 mln wellness centre in Bentong, Pahang.

• Under the agreement, LYC Venture will pay LYC Living a sum equal to 8.0% of the sales proceeds to be derived from the sales of properties within LYC Wellness Valley on a progress billing basis. Work on the proposed LYC Wellness Valley project, located on a 23.9 ac. site at the foothill of Genting Highlands, is expected to start early 2019. The proposed development of LYC Wellness Valley is expected to be carried out over a period of six years. Mexter ventured into the healthcare business in 2017 by providing mother and childcare related services such as postnatal and postpartum care, postdelivery confinement care, child specialist and family clinic and aesthetics.

• In May this year, Mexter has proposed to set up retirement homes in Kuala Lumpur that can accommodate a total of 70 beds. The LYC Venture deal is expected to contribute more than 25.0% of group’s total profit in the future. (The Star Online)

• WZ Satu Bhd’s 4QFY18 net loss stood at RM77.6 mln vs. a net profit of RM3.5 mln recorded in the previous corresponding quarter, dragged down by cost overruns at two big projects, namely the refinery and petrochemical integrated development (Rapid) in Pengerang, Johor and section 9 of the West Coast Expressway in Perak, coupled with a huge impairment charge on its bauxite mining operation. Revenue for the quarter slipped 22.3% Y.o.Y to RM116.8 mln.

• For FY18, cumulative net loss stood at RM84.2 mln vs. a net profit of RM25.4 mln recorded in the previous corresponding year. Revenue for the year declined 10.5% Y.o.Y to RM501.8 mln. (The Star Online)

• Sime Darby Bhd has entered into a conditional share purchase agreement (SPA) to acquire the entire issued share capital in Brisbane-based Heavy Maintenance Group Pty Ltd (HMG) for AU$58.0 mln (about RM172.0 mln), cashand debt-free.

• The acquisition will be funded by borrowings and the acquisition is expected to be completed by end-2018. (The Edge Daily)

• Kuchai Development Bhd plans to distribute to its shareholders, via a dividend-in-specie, up to 2.0 mln KluangRubber Co (Malaya) Bhd shares on the to RM245.7 mln. (The Edge Daily) basis of one Kluang Rubber share for every 62.6 shares held in Kuchai.

• The 2.0 mln Kluang Rubber shares consist of Kuchai's current holding of 959,522 shares in Kluang Rubber and the 1.0 mln shares to be received from the dividend-in-specie by Sungei Bagan Rubber Co (Malaya) Bhd — a company which Kuchai is a shareholder of. (The Edge Daily)

• Mudajaya Group Bhd’s 26.0%-owned Indian associate, RKM Powergen Pvt Ltd, has entered into a pilot agreement for the procurement of power with PTC India Ltd. The deal involves the supply of 550 MW of power for a period of three years. RKM is expected to commence power supply generated from units 2 and 3 of the coalfired thermal power plant in Chhattisgarh State with effect from February 2019, after obtaining the approvals from various agencies and authorities. (The Edge Daily)

• Nestle (Malaysia) Bhd's 3Q2018 net profit rose 15.7% Y.o.Y to RM137.7 mln, driven by strong domestic and export sales. Revenue for the quarter rose 8.3% Y.o.Y to RM1.43 bln.

• For 9M2018, cumulative net profit increased 4.6% Y.o.Y to RM535.1 mln. Revenue for the quarter climbed 4.8% Y.o.Y to RM4.2 bln. An interim dividend of 70 sen per share, payable on 13th December 2018 was declared. (The Edge Daily)

• Globetronics Technology Bhd’s 3Q2018 net profit added 64.2% Y.o.Y to RM23.6 mln, boosted by lower cost of sales. Revenue for the quarter gained marginally by 0.8% Y.o.Y to RM87.7 mln.

• For 9M2018, cumulative net profit jumped 84.3% Y.o.Y to RM48.1 mln. Revenue for the quarter rose 23.0% Y.o.Yto RM245.7 mln. (The Edge Daily)

Source: Mplus Research - 31 Oct 2018