Sideway End To The Week

• The FBM KLCI closed on a higher note as investors digested fresh corporate results and gains in selected telco-heavyweights as well as the strong gains on Wall Street the night before. The lower liners, however, retreated, with the FBM Ace (- 0.1%) being the worst hit. On the broader market, many the sub-sectors fell with the exception of the technology, financial services, plantations, healthcare and telecommunications and media sectors.
• Market breadth remained cool as losers beat winners on a ratio of 583-to-316 stocks. Trade volumes, meanwhile, surged 29.8% to 2.16 bln shares amid the extended selling pressure in the lower liners in the second half of the intraday session.

• PPB (+90.0 sen), Nestle (+80.0 sen), Kuala Lumpur Kepong (+30.0 sen) and Hong Leong Financial Group (+28.0 sen) dominated the key-index winners’ list. IHH Healthcare also gained 25.0 sen on news that its major shareholder, Khazanah plans to dispose a slice of its controlling stake in the former to Mitsui. On the broader market, Carlsberg (+44.0 sen), Heineken Malaysia (+44.0 sen), QL Resources (+27.0 sen), Batu Kawan (+20.0 sen) and Time Dotcom (+17.0 sen) rose.

• On the opposite side of the trade, losers were Ajinomoto (-84.0 sen), BAT (-56.0 sen), Bintulu Port (-24.0 sen), United Plantations (-24.0 sen) and KESM Industries (-22.0 sen). Key-index laggards include O&G-linked counters like Petronas Dagangan (-34.0 sen), MISC (- 6.0 sen) and Dialog (-5.0 sen), followed by Genting (-23.0 sen) and Genting Malaysia (-16.0 sen).

• Key regional benchmark indices closed mostly in the red – led by the Shanghai Composite (-1.3%) and Hang Seng index (-0.9%) as investors turn cautious ahead of the long-awaited G-20 meeting on Saturday. The Nikkei, however, added 0.4% for the fifth-straight day, while ASEAN equities were a mixed bag on Thursday’s closing bell.

• U.S. stockmarkets dips on mild profittaking activities and stronger Treasury yields, while investors digested a series of fresh economic data. The Dow (-0.1%), the S&P500 (-0.2%) and the Nasdaq (- 0.3%) all saw meager losses on Thursday.

• U.K. bourses logged gains yesterday, helped by miners and banking heavyweights after passing the Bank of England’s stress test, indicating that the U.K. banking system is resilient enough to withstand a recession or economic slowdowns. The FTSE was up by 0.5%, while the CAC rose 0.5%. The DAX, however, flatlined after a raid at Deutsche Bank amid money laundering investigations.

The Day Ahead

• Although the key index managed to chalk-up decent gains yesterday, the 1,700 points level remains a formidable level to clear convincingly as the buying interest was still selective, largely concentrated on index linked stocks and on relatively modest volumes. Nevertheless, the rebound allowed the key index to potentially set the stage for window dressing activities ahead of the year end.

• In the meantime, the FBM KLCI could revert to a sideway mode to end the week as market players await for the outcome of the meeting between the Presidents of the U.S. and China that could mark the closure of the trade war. If so, we see markets potentially rallying at the start of next week, but if there is no agreement, the market may consolidate instead. For now, we see the key index lingering within the 1,690 and 1,700 levels, with the other support and resistance levels at 1,680 and 1,710 respectively.

• Even with the generally improved market environment, the broader market remains tepid, curtailed by the lack of following as many retail players are still on the sidelines and remaining wary of the market’s direction. Hence, we think that similar conditions are likely to prevail to end the week as most players still in a cautious mood.

Company Update

• Kimlun Corporation Bhd’s 3Q2018 net profit gained 10.5% Y.o.Y to RM15.7 mln, lifted by the higher contribution from the manufacturing & trading segment that offset the weakness in both the construction and property development segments. Revenue for the quarter rose 5.8% Y.o.Y to RM262.4 mln.

• For 9M2018, however, cumulative net profit fell 13.9% Y.o.Y to RM38.2 mln. Revenue for the period added 14.4% Y.o.Y to RM701.2 mln. The reported earnings came slightly above our expectations, accounting to 79.4% of our previous full year estimated net profit of RM48.1 mln. Meanwhile, the reported revenue came within our expectation, accounting to 74.6% of our full year revenue forecast of RM940.2 mln. The better-than-expected earnings was due to higher contribution in the manufacturing & trading segment from Pan Borneo Highway project, the KVMRT Line 2 sales orders and an IBS components sales orders.

Comments

• As the reported earnings came slightly above our estimates, we tweaked our earnings forecast higher by 9.5% and 4.8% to RM52.7 mln and RM57.7 mln for 2018 and 2019 respectively to account for the higher margins from the manufacturing segment. We also upgrade Kimlun to a BUY (from Hold) with a higher target price of RM1.60 (from RM1.55) as we deem that valuations of 7.2x and 6.6x PERs for 2018 and 2019 respectively is attractive at the lower-end of the construction industry average of 9.0x.

• Our target price is derived from ascribing an unchanged target PER of 9.0x 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 Update

• Malayan Banking Bhd’s 3Q2018 net profit dipped 3.4% Y.o.Y to RM1.97 bln due to a 3.3% Y.o.Y decline in net operating income as a result of continued global market volatilities which dampened economic growth and demand in key segments. Revenue for the quarter, however, rose 4.0% Y.o.Y RM12.1 bln.

• For 9M2018, cumulative net profit added 7.3% Y.o.Y to RM5.78 bln. Revenue for the period rose 3.8% Y.o.Y to RM35.08 bln. (The Star Online)

• CIMB Group Holdings Bhd’s 3Q2018 net profit rose 4.2% Y.o.Y to RM1.18 bln, due to improved contributions across all segments except wholesale banking. Revenue for the quarter, however, slipped 6.4% Y.o.Y to RM4.14 bln.
• For 9M2018, cumulative net profit added 30.7% Y.o.Y RM4.47 bln. Revenue for the period gained 6.0% Y.o.Y to RM13.31 bln. (The Star Online)

• Alliance Bank Bhd's 2QFY19 net profit increased 14.4% Y.o.Y to RM140.5 mln. Revenue rose 2.5% Y.o.Y to RM800.3 mln.

• For 1HFY19, cumulative net profit improved 7.4% Y.o.Y to RM276.9 mln. Revenue for the period grew 2.5% Y.o.Y to RM800.3 mln. An interim dividend of 8.5 sen was declared. (The Star Online)

• KPJ Healthcare Bhd’s 3Q2018 net profit increased by 35.1% Y.o.Y to RM41.1 mln, boosted by its cost optimisation and also higher revenue, especially from its Malaysian operations. Revenue for the quarter rose 4.1% Y.o.Y to RM820.6 mln.

• For 9M2018, cumulative net profit added 24.8% Y.o.Y to RM126.1 mln. Revenue for the period increased 4.2% Y.o.Y to RM2.44 bln. (The Star Online)

• AirAsia Group Bhd’s 3Q2018 net profit jumped 81.2% Y.o.Y to RM915.9 mln, due to a one-off gain on the sale of Expedia. Revenue for the quarter grew 6.6% Y.o.Y to RM2.61 bln.

• For 9M2018, cumulative net profit rose jumped 90.6% Y.o.Y to RM2.42 bln. Revenue for the period gain 10.3% Y.o.Y to RM7.78 bln. (The Edge Daily)

• DRB-Hicom Bhd’s 2QFY19 net loss stood at RM11.4 mln vs. a net profit of RM742.6 mln recorded in the previous corresponding quarter, due to absence of R&D reimbursement grant of RM1.10 bln obtained for Proton. Revenue for the quarter fell 1.7% Y.o.Y to RM3.18 bln.

• For 1HFY19, cumulative net loss stood at RM78.0 mln against a net profit of RM559.8 mln in the previous corresponding period. Revenue for the period fell 8.3% Y.o.Y to RM5.84 bln. (The Edge Daily)

• Padini Holdings Bhd’s 1QFY19 net profit declined 42.5% Y.o.Y to RM18.0 mln, due to margin compression as a result of higher operational expenses. Revenue for the quarter, however, added 4.6% Y.o.Y to RM329.8 mln. (The Edge Daily)

• GHL Systems Bhd is buying Speed Pay Plc for US$2.0 mln (about RM8.6 mln) in cash to expand its footprint in Cambodia. GHL will pay US$448,284 to subscribe to the new shares of Spee Pay, representing 18.1% of the Speed Pay’s enlarged share capital and will also pay US$1.6 mln to the shareholders of Speed Pay, namely Lim Sambat and Da Sopheak, to purchase a stake in Speed Pay of 32.9%, using internally-generated funds. (The Edge Daily)

• Genting Plantations Bhd’s 3Q2018 net profit declined 69.3% Y.o.Y to RM23.5 mln, due to depressed prices for palm products. Revenue for the quarter, however, increased by 12.7% Y.o.Y to RM488.8 mln.

• For 9M2018, cumulative net profit declined by 31.5% Y.o.Y to RM150.6 mln. Revenue for the period, however, grew 10.9% Y.o.Y to RM1.42 bln. (The Edge Daily)

• Khazanah Nasional Bhd is divesting a 16.0% stake in IHH Healthcare Bhd to Mitsui & Co Ltd for RM8.42 bln. Following the divestment, its stake in IHH will drop to 26.1% which is based on the enlarged share capital of IHH after completion of the acquisition of a 30.0% additional equity interest in Acibadem Saglik Yatirimlari Holdings A.S. IHH announced the Acibadem acquisition on 8th October 2018. (The Edge Daily)

• On-going negotiation between the government and Malaysia Airports Holdings Bhd for the review of the operating agreement (OA) may result in creation of five airport zones, which currently have two OAs — one in both KL airports and the other for other airports.

• The five zones are KLIA terminals, airports in northern peninsula, Sabah, Sarawak and other airports. This is in line with the government’s intention for MAHB to find fresh funds through JVs with new stakeholders to develop the airports. (The EdgeDaily)  

Source: Mplus Research - 30 Nov 2018