Mild Gains Seen

• Tracking the renewed volatility on Wall Street overnight, the FBM KLCI (-0.4%) extended its losses after lingering in the negative territory for the entire trading session yesterday. The lower liners – the FBM Small Cap (-0.9%), FBM Fledgling (- 0.1%) and FBM ACE (-0.7%) all remain in the red, while the Financial Services (+0.02%), Healthcare (+0.3%) and Utilities (+0.2%) sectors outperformed the negative broader market.

• Market breadth stayed negative as decliners outnumbered advancers on a ratio of 487-to-299 stocks, while 363 stocks traded unchanged. Traded volumes declined 1.1% to 2.23 bln shares as investors remain cautious on the recent volatility.

• More than half of the key index constituents fell, dragged down by Nestle (-50.0 sen), followed by KLK (-22.0 sen), Axiata (-18.0 sen), Petronas Chemicals (- 17.0 sen) and Hong Leong Financial Group (-16.0 sen). Amongst the biggest losers on the broader market include United Plantations (-60.0 sen), BAT (-56.0 sen), Ajinomoto (-40.0 sen), Chin Teck Plantations (-33.0 sen) and KESM Industries (-24.0 sen).

• Notable advancers on the broader market were Dutch Lady (+30.0 sen), Yinson (+21.0 sen), Carlsberg (+18.0 sen) and Mega First Corporation (+16.0 sen). Air Asia gained 4.0 sen after reporting increased number of passengers in the Malaysia, Indonesia and Philippines operations in 4Q2018. Meanwhile, Genting (+8.0 sen), RHB Bank (+5.0 sen), Genting Malaysia (+4.0 sen), Petronas Gas (+4.0 sen) and Maybank (+3.0 sen) topped the FBM KLCI advancers list.

• Asian benchmark indices ended mostly lower as the Hang Seng Index and Shanghai Composite fell 0.2% and 0.1% respectively, spooked by the renewed selloff on Wall Street overnight. The Nikkei (+0.1%), however, outperformed after recovering all its intraday losses on gains in utilities sector. ASEAN stockmarket, meanwhile, continues to close mostly lower yesterday.

• U.S. stockmarkets finished mixed overnight as the Dow (+0.2%) recovered some of its previous session losses as investors monitor the trade developments with China, coupled with the outcome of the two-day U.S. Federal Reserve policy meeting. On the broader market, the S&P 500 fell 0.2%, dragged down by the weakness in the technology sector (-1.0%), while the Nasdaq closed 0.8% lower.

• Earlier, European indices advanced as the FTSE jumped 1.3% after lawmakers voted for Prime Minister Theresa May to renegotiate the Brexit withdrawal agreement with the European Union. The CAC rose 0.8%, while the DAX closed 0.1% higher after recovering all its intraday losses.

The Day Ahead

• There remains little impetus for stocks on Bursa Malaysia to make significant headway, but after two successive days of losses, we think there could be some measure of stability after global stocks regained some footing overnight. This could help to tip FBM KLCI higher as the buying looks to return.

• Nevertheless, we think that the upsides may be limited as there are still few noteworthy leads to spur stocks higher. Hence, the near term gains will stem from mild bargain hunting activities that could help to lift the key index to the 1,695 resistance. If the renewed buying is firmer-than-expected, the 1,700 points level will be the next target. Meanwhile, the supports are at 1,685 and 1,680 respectively.

• Elsewhere, the lower liners and broader market shares are still undergoing a consolidation spell after their recent gains. We see the consolidation continuing as bouts of profit taking are still prevalent with some retail players trimming their position ahead of the upcoming Lunar New Year break.

Company Update

• Comfort Gloves Bhd is planning to terminate its existing Employees’ Share Scheme (ESS) on the grounds that it is not suitable to attract, motivate and reward employees and directors. The exercise price of the ESS option is 93.5 sen per share, which is currently out-ofthe-money, based on the closing market price of Comfort Gloves shares of 88.0 sen on 28th January, 2019.

• The total number of ESS that have been granted but yet to be exercised since the implementation of the existing ESS stood at 30.8 mln shares. However, the group said that it was looking at alternative means of rewarding its employees and directors. (The Edge Daily)

Comments

• The termination of the ESS is expected to increase CGB’s forecast FY19 net profit by 8.9% to RM28.0 mln, compared to RM25.7 mln previously as the group unwinds the share option reserve of RM2.3 mln set aside for the ESS previously. We are neutral on the termination of the ESS as we view the windfall as a one-off event which is unrelated to the group’s core business operations.  However, we downgrade our call on CGB to a HOLD (from Buy) with a revised target price of RM0.90 (from RM1.10) by ascribing lower target PER of 15.0x (from 18.0x) to its (unchanged) FY20 EPS of 6.1 sen amid a weakening Greenback, which could weigh on topline if the Ringgit continues to appreciate and potential supply-demand imbalance.

• The adjusted target PER is-line with the recent drop in sector valuation and remains at a significant discount to the PERs of industry bellwethers like Hartalega Holdings Bhd and Top Glove Corporation Bhd due to CGB’s smaller market capitalisation and capacity.

COMPANY BRIEF

• Genting Bhd's wholly-owned subsidiary, Resorts World Las Vegas (RWLV) and Wynn Resorts Holdings LLC have confirmed the settlement agreement on a dispute involving trade dress and copyright infringement claims surrounding the design of the US$4.0 bln (RM16.45 bln) RWLV project.

• The proposed settlement will allow Genting to continue to develop RWLV with minimal impact to cost and the overall project timeline. (The Edge Daily)

• LPI Capital Bhd‘s 4Q2018 net profit inched marginally higher by 1.2% Y.o.Y to RM84.0 mln, from RM83.0 mln a year ago, mainly contributed by its investment holding segment. Revenue also rose 7.0% Y.o.Y to RM389.0 mln vs. RM363.5 mln previously. Subsequently, LPI has declared a second interim dividend of 42.0 sen for 2018, payable on 27th February 2019.

• For 2018, LPI posted a flat net profit of RM314.1 mln compared with RM313.8 mln in the previous year, although its revenue for the year grew slightly by 2.9% Y.o.Y to RM1.51 bln, from RM1.47 bln last year. (The Edge Daily)

• Axiata Group Bhd’s 63.0%-owned subsidiary, edotco Group Sdn Bhd is planning to acquire up to an 80.0% stake in a Laotian telecommunications infrastructure services provider for 12.8 bln kip (RM6.1 mln).

• The proposed acquisition from Viphet Sihachakr and Mekong Tower Co Ltd will provide edotco Group with expansion and growth opportunities. (The Star Online)

• DRB-Hicom Bhd's 51.0%-owned indirect subsidiary, Hicom-Teck See Manufacturing Malaysia Sdn Bhd (HTS) is working together with Shanghai-listed Jiangsu Xinquan Automotive Trim Co Ltd (XQ) to jointly-design, develop and manufacture instrument panel, floor consoles and door trims and related components for vehicles in Malaysia.

• The joint-venture company in Malaysia called Xinquan-Hicom Malaysia Sdn Bhd and will be held by XQ and HTS on the basis of a 51:49 ratio. (The Star Online)

• Eita Resources Bhd has formed a 70:30 JV with Royal Malaysia Police Cooperative Bhd’s unit, KOP Mantap Bhd for the provision of service, maintenance, repair, upgrade and modernise lifts, escalators and elevators to third parties. Consequently, the group has signed a shareholders agreement with KOP Mantap for the formation of the JV called Eita KOP Sdn Bhd.

• EM will be overseeing the JV’s day-to-day operations; providing relevant training and syllabus in relation to lift and escalator studies to Kolej Unikop students while providing job opportunities to the graduates. (The Edge Daily)  Sunway Bhd has set up a sukuk programme to raise up to RM10.0 bln in nominal value to fund its investment activities, capex, working capital and general corporate expenses as well as to pare debt.

• The seven-year Islamic Commercial Papers/Islamic Medium Term Notes Programme under the Shariah principle of Mudharabah is set up via its indirect wholly-owned unit, Sunway Treasury Sukuk Sdn Bhd – with the first issuance expected in 1Q2019. (The Star Online)

• Pavilion Real Estate Investment Trust's (REIT) 4Q2018 total net property income (NPI) increased 13.4% Y.o.Y to RM101.0 mln, from RM89.1 mln a year ago, due to higher revenue at RM147.1 mln (+13.6% Y.o.Y), from RM129.5 mln a year ago. It also declared a final income distribution of 4.44 sen per unit for 2018, payable on 28th February 2019.

• Meanwhile, Pavilion REIT's 2018 total NPI rose 16.1% Y.o.Y to RM374.8 mln, from RM322.9 mln in the previous year. Revenue also expanded 13.3% Y.o.Y to RM555.0 mln, from RM490.0 mln in 2017. (The Edge Daily)

• Uzma Bhd is planning to take up another 15.0% equity stake in Setegap Ventures Petroleum Sdn Bhd for RM36.0 mln in cash. The proposed acquisition allows the group to increase its equity interest in Setegap Ventures as well as to consolidate a higher percentage of the latter's earnings.

• The group entered into a conditional share sale agreement with Nasri Nasrun Ventures Sdn Bhd (NNVSB) to acquire 694,350 shares in Setegap Ventures, which will increase Uzma’s stake in Setegap Ventures to 64.0%. (The Edge Daily)  

Source: Mplus Research - 30 Jan 2019