Buoyed By Overseas Positivity​​​​

• The FBM KLCI staged a mild rebound yesterday, buoyed by bargain-hunting activities in Genting and stronger crude oil prices amid supply concerns. The lower liners – the FBM Ace (-0.1%), the FBM Fledgling (-0.1%) and the FBM Small Cap (-0.2%), however, continued to descend, while the broader market closed mostly mixed.

• Market breadth was flat as decliners inched winners on a ratio of 405-to-401 stocks. Meanwhile, traded volumes thinned by 23.4% to 1.67 bln shares as investors adopt a wait-and-see approach ahead of the G20 summit in Buenos Aires over the weekend.

• Top key-index performers were Nestle (+RM1.70), IHH Healthcare (+33.0 sen), Genting (+19.0 sen), Axiata (+13.0 sen) and Public Bank (+8.0 sen). Meanwhile, glove-makers, primarily Supermax (+16.0sen) and Top Glove (+15.0 sen), led the broader market gainers, followed by BAT (+RM1.10), United Malacca (+14.0 sen) and Dutch Lady (+13.0 sen).

• Plantations-related counters like Chin Teck Plantations (-18.0 sen), Negeri Sembilan Oil Palms (-15.0 sen) and Sime Darby Plantation (-12.0 sen) led the broader market lower, together with KESM Industries (-28.0 sen) and Pos Malaysia (-11.0 sen). Meanwhile, Petronas Dagangan (-64.0 sen), Tenaga Nasional (-46.0 sen), Digi (-4.0 sen) and MISC (-4.0 sen) were among the main decliners on the Main Board.

• Japanese equities finished higher on Wednesday on hopes of a Sino-U.S. trade war de-escalation as the Nikkei logged gains for the fourth-consecutive session. The Hang Seng index also rallied, boosted by gains in energy stocks, while theShanghai Composite ended higher by 1.1% to 2,601.7 points. Most ASEAN stockmarkets, meanwhile, were positive.

• Wall Street posted strong gains on Wednesday after Federal Reserve Chairman Jerome Powell signaled potentially slower interest rates hikes in 2019 amid slowing growth and trade uncertainties. The Dow jumped more than 600 points (+2.5%), lifted by Caterpillar (+5.0%), while tech-oriented indices – the S&P500 and the Nasdaq also soared 2.3% and 3.0% respectively.

• European benchmark indices closed with minor losses as investors digested new developments from key central banks in the U.S. and the EU. The FTSE (-0.2%) closed in the red for the second-straight day, weighed down by unabated Brexit uncertainties, together with the DAX (- 0.1%). The CAC, however, flatlined.

THE DAY AHEAD

• After posting marginal gains in a choppy trend yesterday, we think that market conditions could be calmer in the near term that could promote further gains. We see the gains as Malaysian stocks play catch up to the overnight positivity on Wall Street and other key global stockmarkets on optimism over potentially slower interest rate hikes in the U.S.

• At the same time, market players are awaiting for a positive outcome in the trade talks between the U.S. and China in an upcoming meeting of their respective Presidents. As a result, we see the positivity helping the key index to retest the 1,700 points level again and if the level is breached, the next target is the 1,710 points level. Meanwhile, the supports remain at 1,690 and 1,680 respectively.
• We also think the positively could provide some fuel for the lower liners and broader market shares to break the current insipid trend. However, with market following still tepid, we see limited upsides as there is still some measure of tentativeness among the retail players.

COMPANY UPDATE

• Mitrajaya Holdings Bhd’s 3Q2018 net profit sank 76.2% Y.o.Y to RM5.1 mln, dragged down by lower contribution across all its business segments. Revenue for the quarter declined 31.8% Y.o.Y to RM204.0 mln. For 9M2018, cumulative net profit contracted 45.3% Y.o.Y to RM34.6 mln. Revenue for the period slipped 24.5% Y.o.Y to RM675.8 mln.

• The reported earnings came below our expectations, amounting to only 54.7% of our previous 2018 net profit forecast of RM63.2 mln, while revenue for the period also came below our expectations, accounting to 65.6% of our RM1.03 bln forecast. The difference in both the top and bottomline is due to lower contribution across all its business segments, coupled with margins compression from the construction segment.

Comments

• We trimmed our earnings forecast for 2018 and 2019 by 28.0% and 30.9% to RM45.5 mln and RM43.8 mln respectively to account for the slower execution of construction works, margins compression in the construction segment and the sluggish property sales. Consequently, we downgrade Mitrajaya to HOLD (from Buy) with a lower target price of RM0.35 (from RM0.50). We believe that earnings are likely to be muted over subsequent quarters in view of thegeneral slowdown in Malaysia’s construction sector.

• 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 0.6x (from 0.8x) of their respective book values. The further discount on its book value is to reflect the slowdown in the general property development market.

• OCK Group Bhd’s 3Q2018 net profit added 13.0% Y.o.Y to RM7.8 mln, lifted by the improved margins from the telecommunication network services segment, coupled with lower operating expenses as a result of its cost rationalization programme. Revenue for the quarter, however, fell 12.3% Y.o.Y to RM109.8 mln on lower contribution from the telecommunication network services, green energy and power solution and mechanical and electrical engineering services segments.

• For 9M2018, however, net profit declined 2.6% Y.o.Y to RM17.1 mln. Revenue for the period decreased 8.0% Y.o.Y to RM322.8 mln. Although the reported earnings and revenue only amounted to 62.9% and 59.2% of our full year forecast of RM27.2 mln and RM545.3 mln respectively, we deem the aforementioned figures to be in line as OCK’s nine-month results traditionally make up about 60.0%-70.0% of its full year earnings.

Comments

• With the 3Q2018’s results coming within our expectations, we leave our earnings forecast unchanged and we maintain our BUY recommendation on OCK with an unchanged target price of RM0.80. We continue to like OCK for its position as one of the leading telecommunicationnetwork services provider in the ASEAN region whereby its business model would provide a stream of recurring earnings over the next decade.

• We adopt a sum-of-parts (SOP) approach as we valued its telecommunication network services and green energy & power solutions business segments on a discounted cash flow approach (key assumptions include a WACC of 9.0%, terminal growth rate of 1.5%) to reflect its ability to generate recurring revenues and steady earnings growth over the longer term. Meanwhile, we ascribed a 13.0x target PER to both its fully-diluted trading and mechanical & electrical engineering services businesses, based on their potential earnings contribution in 2019.

COMPANY UPDATE

• Hong Leong Bank’s 1QFY19 net profit grew 10.6% Y.o.Y to RM706.9 mln on a robust growth in non-interest income contribution, coupled with prudent cost control and lower impairment allowances. Revenue for the quarter increased 6.0% Y.o.Y to RM1.25 bln. (The Star Online)

• FGV Holdings Bhd’s 3Q2018 net loss stood at RM849.3 mln vs. a net profit of RM41.5 mln recorded in the previous corresponding quarter, due to impairments totalling RM788.0 mln, much of it was from the Asian Plantation Ltd (APL). Revenue for the quarter fell 22.8% Y.o.Y to RM3.19 bln.

• For 9M2018, cumulative net loss stood at RM871.2 mln vs. a net profit of RM80.5 mln in the previous corresponding period. Revenue for the quarter declined 19.2% Y.o.Y to RM10.23 bln. (The Star Online)

• The voluntary takeover offer by Hovid Bhd’s Managing Ddirector, David Ho SueSan and Fajar Astoria Sdn Bhd has been extended to 8th January 2019, from 4th December 2018.

• The joint offerors have secured 86.7% of Hovid thus far. Hovid has also submitted an application for its withdrawal from the Main Market of Bursa Malaysia Securities Bhd after obtaining shareholders’ approval for the withdrawal on 26th November 2018. (The Star Online)

• UEM Sunrise Bhd’s 3Q2018 net profit sank 85.2% Y.o.Y to RM21.2 mln, owing to fewer land sales. Revenue for the quarter slipped 49.1% Y.o.Y to RM431.0 mln.

• For 9M2018, cumulative net profit jumped 66.3% Y.o.Y to RM260.3 mln. Revenue for the period, however, decreased 16.8% Y.o.Y to RM1.29 bln. (The Edge Daily)

• BIMB Holdings Bhd’s 3Q2018 net profit rose 8.3% Y.o.Y to RM198.6 mln, due to higher contribution from its Islamic banking and takaful businesses. Revenue for the quarter grew 19.4% Y.o.Y to RM1.09 bln.

• For 9M2018, cumulative net profit added 10.7% Y.o.Y to RM520.7 mln. Revenue for the quarter gained 11.0% Y.o.Y to RM3.08 bln. An interim dividend of 15.5 sen per share was declared. (The Edge Daily)

• Sapura Energy Bhd’s wholly-owned subsidiaries, Sapura Fabrication Sdn Bhd and Sapura Saudi Arabia have been selected by Saudi Arabian Oil Co (Saudi Aramco) for its long-term agreement (LTA) programme. The programme covers engineering, procurement, fabrication, transportation and installation contracts to support Saudi Aramco's offshore projects. (The Edge Daily)

• Bermaz Auto Bhd has scrapped its plansto list its subsidiary, Bermaz Auto Philippines Inc (BAP), on the main board of the Philippine Stock Exchange. The decision was made after considering the current challenging automotive market conditions in the Philippines. (The Edge Daily)

• Aeon Co (M) Bhd’s 3Q2018 net profit rose 14.7% Y.o.Y to RM13.9 mln on higher revenue on the back of better merchandise assortment. Revenue for the quarter grew 10.8% Y.o.Y to RM1.06 bln.

• For 9M2018, cumulative net profit slipped 21.7% Y.o.Y to RM51.6 mln. Revenue for the period, however, added 6.4% Y.o.Y to RM3.24 bln. (The Edge Daily)

• Affin Bank Bhd’s 3Q2018 net profit surged 262.3% Y.o.Y to RM144.6 mln, on higher net fee and commission income, net gain on financial instruments, Islamic banking income and other operating income. Revenue for the quarter rose 51.3% Y.o.Y to RM496.3 mln.

• For 9M2018, cumulative net profit increased 44.7% Y.o.Y to RM359.3 mln. Revenue for the period rose 42.7% Y.o.Y to RM1.47 bln. (The Edge Daily)

• Prestariang Bhd has scrapped plans to create an integrated education platform (IEP) with Alibaba Cloud, the cloud computing arm of China's Alibaba Group, and Singapore-based Conversant Solutions Pte Ltd. Although the Memorandum of Understanding has since lapsed, it will continue to explore mutually beneficial business relationship with the parties in the education market. (The Edge Daily)

• Sarawak Oil Palms Bhd’s 3Q2018 net profit fell 68.6% Y.o.Y to RM17.7 mln, due to lower volume of palm productstransacted and lower palm products average realised prices. Revenue for the quarter dropped 27.8% Y.o.Y to RM870.3 mln.

• For 9M2018, cumulative net profit declined 71.5% Y.o.Y to RM54.3 mln. Revenue for the period fell 27.6% Y.o.Y to RM2.55 bln. (The Edge Daily)

• Iris Corp Bhd’s 2QFY19 net profit stood at RM4.2 mln vs. a net loss of RM14.7 mln in the previous corresponding quarter, as the recognition of litigation cases’ settlement totalling of RM17.9 mln affected its earnings in 2QFY18. Revenue for the quarter, however, fell 31.8% Y.o.Y to RM75.1 mln.

• For 1HFY19, cumulative net profit stood at RM12.9 mln vs. a net loss of RM9.5 mln in the previous corresponding period. Revenue for the quarter, however, dropped 28.5% Y.o.Y to RM150.9 mln. (The Edge Daily)

Source: Mplus Research - 29 Nov 2018