Still Gaining Ground, But Expect Volatility

• The FBM KLCI added 1.1% with the majority of its constituents in the green following the bullish sentiments spilled over from Wall Street and the stronger Ringgit. The lower liners – the FBM Small Cap (+1.0%), the FBM Fledgling (+0.5%) and the FBM Ace (+1.5%) indices also staged a recovery alongside the entire broader market.

• Market breadth was positive as advancers more than doubled the decliners, while traded volumes rose 13.7% to 1.61 bln shares following the broad recovery across global equities.

• Main Board chart-toppers were Nestle (+RM2.50), Hong Leong Bank (+52.0 sen), Malaysia Airports (+26.0 sen), Hong Leong Financial Group (+24.0 sen) and Petronas Gas (+22.0 sen). Broader market advancers were led by consumer products-linked counters like Ajinomoto (+60.0 sen) and Fraser & Neave (+36.0 sen), followed by BAT (+80.0 sen), AllianzMalaysia (+40.0 sen) and Aeon Credit (+38.0 sen).

• Broader market decliners, meanwhile, were Yinson Holdings (-15.0 sen), Cahya Mata Sarawak (-14.0 sen), UMS Holdings (-14.0 sen), MSM Malaysia (-12.0 sen) and Amway (-10.0 sen). The only three key-index constituents to close in the red were Kuala Lumpur Kepong (-6.0 sen), Petronas Dagangan (-6.0 sen) and Hap Seng Consolidated (-1.0 sen).

• Japan’s blue-chip gauge, the Nikkei (+3.9%) closed positively in-tandem with the strong comeback on Wall Street overnight and stronger energy prices after OPEC signed a landmark agreement to cut supply. Chinese stockmarkets, however, ended in the red - dragged down by soft economic data and losses in Sinopec after the Chinese state oil major suspended two of its key executives. The Shanghai Composite and the Hang Seng finished 0.6% and 0.7% lower respectively, but most ASEAN stockmarkets rallied.
• U.S. equities, meanwhile, jumped from its intraday low and closed higher on Thursday, boosted by bargain-hunting activities in the final trading hour. The Dow reversed more than 600 points of losses and closed up by 1.1%, alongside the S&P 500 (+0.9%). The Nasdaq (+0.4%) also eked-out gains to end at 6,579.5 points.
• Earlier, U.K. stockmarkets were painted red as the FTSE (-1.5%) finished lower, dragged down by the weakness in commodity-linked counters following weaker-than-expected Chinese industrial reports. Other key European bourses also headed south with the DAX and the CAC down by 2.4% and 0.6% respectively on renewed Sino-U.S. trade tensions following reports of a potential executive ban on Huawei and ZTE’s equipment in the U.S.

THE DAY AHEAD

• As the key index approaches the 1,690 level in yesterday’s push, we see further near term upside in the continuing window dressing activity that could see the key index topping the psychological 1,700 points levels.

• The sustained positivity in global indices is seen as the fuel for the sustained uptrend on Bursa Malaysia, albeit we see increased volatility as bouts of quick profit taking actions could emerge. Nevertheless, we think Malaysia equities could still make headway as the current positive market undertone will provide some buying impetus. The supports are seen at 1,680 and 1,670 respectively.

• The lower liners and broader market shares are also seeing renewed buyinginterest, but the still low market following is likely to limit the upside potential, in our view.

COMPANY UPDATE

• Kim Loong Resources Bhd’s 3QFY19 net profit slipped 40.5% Y.o.Y to RM16.3 mln, dragged down by lower fresh fruit bunches (FFB) production from the plantation segment, whilst revenue for the quarter fell 21.3% Y.o.Y to RM227.6 mln. The decline in both the top and bottom line is due to lower FFB production, coupled with lower average selling prices (ASP) of crude palm oil (CPO).

• For 9MFY19, cumulative net profit sank 37.3% Y.o.Y to RM49.0 mln. Revenue for the period decreased 16.3% Y.o.Y to RM674.4 mln. The results came in below expectations with its net profit only amounting to 62.2% of our previous fullyear forecast of RM78.7 mln, while its revenue also came below our forecast, amounting to 70.8% of our FY19 estimate of RM952.1 mln.

Comments

• In view of the weaker-than-expected results, we trimmed our net profit forecast by 15.1% and 11.9% to RM66.8 mln and RM79.0 mln for FY19 and FY20 respectively to account for the lowerthan-expected FFB and CPO average selling prices.

• Despite that, we maintain our HOLD recommendation on KLR, but with a lower target price of RM1.18 (from RM1.35). Our target price is derived by ascribing an unchanged target PER of 14.0x to its revised FY20 EPS of 8.4 sen. The ascribed target PER is in line with the industry average of around 13.5x-15.5x.

COMPANY BRIEF

• Hock Seng Lee Bhd (HSL), in a consortium, has secured a contract worth RM91.0 mln from Sarawak Energy Bhd for a substation project in Sarawak. The consortium of Larsen & Toubro Limited, HSL and Larsen & Toubro (East Asia) Sdn Bhd has been awarded a contract for the Matang 275/132/33/kV Substation Project in Matang, Kuching, Sarawak. HSL has 45.0% equity in the consortium.

• The scope of works for HSL includes earth works, pilling, civil infrastructure works, building and its related mechanical and electrical works. The contract period for the completion and commissioning of the project is 32 months commencing 7th January 2019. (The Star Online)

• Berjaya Corporation Bhd’s 2QFY19 net loss narrowed to RM71.0 mln vs. a net loss of RM146.0 mln recorded in the previous corresponding quarter, due to the absence of impairment related to the sale of the Great Mall of China (GMOC) project. Revenue for the quarter, however, fell 9.0% Y.o.Y to RM1.99 bln.

• For 1HFY19, cumulative net loss also narrowed to RM36.0 mln, from a net loss of RM189.4 mln recorded in the previous corresponding period. Revenue for the period, however, slipped 5.7% Y.o.Y to RM4.13 bln. (The Star Online)

• Malton Bhd's joint venture (JV) with Hong Kong-listed Nan Hai Corp Ltd has been selected to enter into the next phase of bidding to build a superstructure above the airport express train station located near the Taipei main train station in Taiwan. The Department of Rapid Transit Systems Taipei City Government had announced that the bid submitted by the Nan Hai-Malton JV has been selected as the best applicant for the project.
• Nan Hai holds an 80.0% equity interest in the JV, while Malton holds the remaining 20.0% stake. The Nan Hai-Malton JV will now commence negotiations on the terms of an investment agreement with Taipei City authorities, which is expected to be completed in March 2019. (The Edge Daily)

• Kronologi Asia Bhd plans to acquire IT infrastructure company, Sandz Solutions (Singapore) Pte Ltd for RM75.0 mln using a combination of cash and new share issuance. The acquisition will pave the way for the emergence of a new single largest shareholder in the group. The deal will see Sandz' current owner, Desert Streams Investment Ltd (DSIL) that is controlled by Enrique Galang Velasco, becoming Kronologi's single, largest shareholder with a 23.7% stake. (The Edge Daily)

• EcoFirst Consolidated Bhd is seeking to jointly develop a RM1.25 bln gross development value (GDV) mixed project in Paya Terubong, Penang with the Lone Pine Group. The group has inked a share sale agreement (SSA) to acquire a 70.0% stake in Geo Valley Sdn Bhd, a member of the Lone Pine Group, for RM44.0 mln cash. Geo Valley owns seven pieces of land totalling 32.8 ac. in Paya Terubong. (The Edge Daily)

• UOA Development Bhd has acquired property developer Naik Makmur Development Bhd for RM24.7 mln to expand its existing land bank in Pantai, Kuala Lumpur. Owned by Lembah Bayusegar Sdn Bhd, Naik Makmur holds two parcels of freehold land in Pantai totalling 2,509 sq.m. (The Edge Daily)

• Deleum Bhd has bagged a new contract from ExxonMobil Exploration and Production Malaysia Inc to provide slickline equipment and services for the latter. The value of the three-year contract that comes with a one-yearextension option depends on the agreed rates and work order issued by customers for the duration of the contract. (The Edge Daily)

• Ranhill Holdings Bhd's subsidiary, Ranhill SAJ Sdn Bhd and water asset management company Pengurusan Aset Air Sdn Bhd (PAAB) will spend RM3.40 bln to accelerate the reduction of non-revenue water (NRW) in Johor to 5.0% by 2025, from its current 24.1%. Under the programme, there are 94 pipe rehabilitation projects to be completed by Ranhill SAJ by 2020, while steps will also be taken to address inaccurate meter readings and illegal use of water in the State. (The Edge Daily)

• Karyon Industries Bhd is exiting the metal stearates and mixed metal stabilisers manufacturing business in China via the cessation of operations at its China-based joint venture (JV) company, Karyon (Jinhua) Advanced Materials Co Ltd (KJAM). Karyon owns 66.7% of KJAM’s shares, while the remaining 33.3% stake is held by Southern Aluminium Product Co Ltd (SAP). The cessation follows a request from SAP for a mutual termination of a JV agreement entered into by the two companies on 18th September 2006. (The Edge Daily)

Source: Mplus Research - 28 Dec 2018