Indifferent End To Week

• The local key-index closed 0.2% higher after flitting in-and-out of the red, supported by gains IHH Healthcare and selected telco giants. Most of the lower liners continued its ascent, with the exception of the FBM Ace (-0.1%). More than half of the sub-sectors rallied, with the Energy (+4.2%) sector at the helm.

• Market breadth was positive with 463 gainers vs. 359 losers, while traded volumes surged 47.7% to 3.89 bln shares, boosted by the sharp rally in energy stocks following stronger crude oil prices.

• Significant key-index winners on Thursday were Nestle (+80.0 sen), IHH Healthcare (+20.0 sen), Petronas Dagangan (+12.0 sen), Genting (+8.0 sen) and Axiata (+6.0 sen). Other advancers, meanwhile, include Carlsberg (+82.0 sen), Fraser & Neave (+52.0 sen), Batu Kawan (+34.0 sen), Heineken Malaysia (+28.0 sen) and Petron Malaysia (+22.0 sen).

• In contrast, plantations-related companies like United Plantations (-54.0 sen) and PLS Plantations (-17.0 sen) weighed on the broader market, trailed by Malaysian Pacific Industries (-16.0 sen), Shangri-La Hotels (-15.0 sen) and Syarikat Takaful Malaysia (-10.0 sen). Malaysia Airports (-6.0 sen) led the major decliners, alongside Tenaga Nasional (- 4.0 sen), Kuala Lumpur Kepong (-2.0 sen), Public Bank (-2.0 sen) and Petronas Gas (-2.0 sen).

• Asian shares ended with minor losses as investors took a breather from the recent rally amid a flurry of regional economic data and global trade uncertainties. The Nikkei flatlined, while the Shanghai Composite (-0.1%) ended its five-day winning streak, inching into the red despite stronger-than-expected trade data. The Hang Seng Index also narrowed 0.2% to 28,432.1 points, while the ASEAN stockmarkets ended mixed.

• U.S. key indexes drifted into the negative territory, dragged down by losses in consumer products and banking-related stocks. The Dow (-0.4%) and the S&P 500 (-0.3%) clawed back earlier losses, albeit still closing the red. In contrast, the Nasdaq inched higher by 0.1% on Thursday.

• U.K.’s blue-chip bourse - The FTSE (+0.1%) eked out gains in the final hour, as investors digested upbeat 4Q2018 earnings from drug makers like AstraZeneca. The CAC and DAX, however, weakened by 0.3% and 0.7% respectively after the U.S. posted its biggest annual slowdown in retail sales in more than nine years, renewing expectations of a slowing economy.

The Day Ahead

• The market is still devoid of impetuses to allow the key index to break its spell of indifferent trend and this means that the immediate market is likely to stay rangebound for longer. The release of the country’s GDP performance for 2018 is unlikely to inspire much fresh buying as the prognosis for 2019 remains challenging.

• Consequently, we think that the key index will again linger within the 1,680 and 1,690 levels amid the lack of direction. At the same time, there is still some measure of cautiousness as the ongoing round of corporate results has been largely insipid, providing few catalyst for market players to chase. Apart from the above levels, the other support and resistance levels are at 1,683 and 1,692 respectively.

• Meanwhile, the FBM Small Cap index is already overbought after its recent uptrend. Therefore, we think that the upsides are limited as a pullback is already due. The broader market is also set for a mixed trend after attaining substantive gains in the recent rally.

MACRO BRIEF

• Malaysia’s 4Q2018 GDP came in at 4.7% Y.o.Y (3Q2018: +4.4% Y.o.Y) and 1.4% Q.o.Q (3Q2018: +1.6% Q.o.Q) that also brought the full year GDP to 4.7% Y.o.Y (2017: +5.9% Y.o.Y). The improved quarterly performance is mainly brought about by improved performances of the mining and agriculture sectors to offset the slower growth in the construction, manufacturing and services sectors.  The mining sector’s improved performance was aided by the recovery in oil and natural gas production, while the agriculture sector posted a smaller decline. The construction sector, meanwhile, saw a moderation in the civil engineering and residential construction. Similarly, the manufacturing sector growth eased amid the lower output of construction related and resource based products, albeit cushioned by sustained strength in E&E and transport related segments.

• The services sector growth also moderated with the re-introduction of the SST that also resulted in private sector spending growth easing to 8.1% Y.o.Y (3Q2018: +8.5% Y.o.Y), much of it on the slower finance and insurance subsector. Nevertheless, overall consumer spending is deemed to have stayed firm, evidenced by the strong demand for telephony services and consumer spending.

• On the whole, domestic demand growth eased to 5.6% Y.o.Y in 4Q2018 (3Q2018:+6.9% Y.o.Y) as growth fixed capital formation was on a lower gear. Consequently, private investment growth moderated to 4.4% Y.o.Y (3Q2018:+6.9% Y.o.Y) with most economic sectors reporting lower spending, save for the manufacturing sector. Inflation, meanwhile, declined 0.3% Y.o.Y in 4Q2018, while for 2018 the CPI gained just 1.0% Y.o.Y, much of it due to the easing fuel prices.

• Exports remained strong, growing 8.0% Y.o.Y in 4Q2018 – largely contributed by the 11.8% Y.o.Y improvement in exports of E&E products that offset the 18.0% drop in exports of palm products. Correspondingly, the country’s current account surplus rose RM10.8 bln in 4Q2018 to bring the full year’s current account surplus of RM33.0 bln.

Comments

• 2018’s GDP performance was within consensus estimates amid the improved performance of the both the agriculture and mining sub-sectors. Going into 2019, the country’s economic conditions should remain stable with the above sub-sectors returning to the growth path as the supply constrains ease.

• The other economic subsectors should also continue to post steady growth, barring the escalation of the U.S.-Sino trade dispute that could curtail global trade, albeit Malaysian exporters could still benefit from the substitution effect in some ways that could mitigate some of the downside risk.

• On the whole, private sector activities will continue to drive the Malaysian economy in 2019 as government expenditure is set to dip with the government’s austerity moves where its capital spending is set to fall.

• The manufacturing sector should continue to post a decent growth rate in 2019, forecast at 4.7% Y.o.Y, aided by the sustained demand for E&E products and other export based products.

• After a stronger performance in 2018, the services sector growth could moderate in 2019 as consumer spending is likely to taper with the re-introduction of the SST. Nevertheless, the wholesale and retail, food and beverage as well as logistics and telecommunication sub-sectors will continue to post decent growth rates amid the still firm employment outlook.

• Despite the retraction of several high impact infrastructure projects, the should still be a minor growth in the construction sector for 2019 with the rollout of smaller scale projects and the continuation of ongoing infrastructure projects like the KV MRT 2, LRT 3 and the Pan Borneo Highway. Property related construction, however, will remain in low gear due to the large number of unsold residential and commercial properties.

• In all, the Malaysian economy is forecast to grow at a slower rate of 4.5% Y.o.Y in 2019, which is lower than the previous prognosis of 4.6% Y.o.Y amid a more challenging external sector.

COMPANY BRIEF

• Can-One International Bhd, which owns 31.0% of Kian Joo Can Factory Bhd, has launched a conditional mandatory takeover for the latter at RM3.10 a share. Can-One's current stake comprises of 295.9 mln shares and this will see it making an offer for the remaining stake. UOB Kay Hian Securities (M) Sdn Bhd has been appointed to act as the independent adviser to advise the noninterested directors and the holders of the offer shares in respect of the fairness and reasonableness of the offer. (The Star Online)

• Gas Malaysia Bhd’s 4Q2018 net profit fell 16.7% Y.o.Y to RM51.1 mln, on lower gas contribution margin due to the Gas Cost Pass Through (GCPT) adjustment set for the July-December 2018 period. Revenue for the quarter, however, rose 19.4% Y.o.Y to RM1.74 bln.

• For 2018, cumulative net profit climbed 12.0% Y.o.Y to RM180.4 mln. Revenue for the year added 17.3% Y.o.Y to RM6.23 bln. A 4.5 sen dividend per share, payable on 28th March 2019, was declared. (The Sun Daily)

• Tan Sri Dr Francis Yeoh Sock Ping has been promoted to Executive Chairman of YTL Hospitality Real Estate Investment Trust (REIT), from Chief Executive Officer (CEO) previously. Meanwhile, his brother Datuk Yeoh Seok Kah will take over as CEO effective 14th February 2019. (The Edge Daily)

• Yinson Holdings Bhd was awarded a contract worth US$578.0 mln or RM2.36 bln from JX Nippon Oil & Gas Exploration (Malaysia) Ltd to provide operations and maintenance (O&M) services for the latter’s floating production storage and offloading (FPSO) facilities. The tenure of the O&M Contract is effective from 12 February 2019 for a period of eight years and comes with options for 10 extension periods of one year each. (The Edge Daily)

• Carlsberg Brewery Malaysia Bhd's 4Q2018 net profit rose 34.9% Y.o.Y to RM67.5 mln on stronger performance in Malaysia and Singapore operations, coupled with higher share of profit from associate company, Lion Brewery (Ceylon) PLC. Revenue for the quarter rose 22.3% Y.o.Y to RM525.7 mln.

• For 2018, cumulative net profit increased 25.3% Y.o.Y to RM277.2 mln. Revenue for the year added 12.1% Y.o.Y to RM1.98 bln. A fourth quarter interim dividend of 16.6 sen per share, together with a final dividend of 22.4 sen per share and a special dividend of 9.3 sen per share amounting to a total of 48.3 sen per share was declared. (The Edge Daily)

• The board of Xin Hwa Holdings Bhd, which has been alerted on alleged irregularities involving some transactions and payments, has appointed KPMG Management & Risk Consulting Sdn Bhd to conduct an independent review on the company. The investigation will commence on 18th February 2019 and is expected to be completed within 10 weeks. (The Edge Daily)

• Scope Industries Bhd has proposed to undertake a private placement of up to 66.9 mln new shares, representing 10.0% of its total issued share capital, to fund its electronic manufacturing business expansion.

• Based on an illustrative issue price of 13.5 sen which is based on its five-day volume weighted average market price and a one sen discount, Scope Industries may raise up to RM9.0 mln. (The Edge Daily)

• Sunway Real Estate Investment Trust (REIT) 2QFY19 net property income (NPI) rose marginally by 0.8% Y.o.Y to RM104.2 mln, lifted by lower advertising and promotional (A&P) expense of RM1.6 mln and maintenance expenses of RM1.8 mln. Revenue for the quarter, however, fell 1.4% Y.o.Y to RM139.5 mln.

• For 1HFY19, cumulative net property income improved marginally by 0.2% Y.o.Y to RM214.7 mln. Revenue for the period also rose marginally by 0.2% Y.o.Y to RM283.2 mln. An income distribution per unit (DPU) for the quarter of 2.25 sen was proposed. (The Edge Daily)

• Founder and substantial shareholder of PLS Plantations Bhd, Tan Sri Lim Kang Hoo has assumed the Executive Chairmanship of the company. PLS also reported that that Cho Joy Leong @ Cho Yok Lon and Chow Yoon Sam were appointed as Independent and NonExecutive Directors of PLS.

• Kang Hoo’s son, Lim Chen Thai was redesignated as Alternate Director from Non-Executive director, while Datuk Ibrahim Keling has resigned as Independent and Non-Executive Director. (The Edge Daily)

• Dialog Group Bhd’s 2QFY19 net profit rose 18.2% Y.o.Y to RM136.8 mln, thanks to cost savings realised on completed projects and increased share of profit in joint ventures and associates. Revenue for the quarter, however, fell 28.9% Y.o.Y to RM609.6 mln.

• For 1HFY19, cumulative net profit declined 9.1% Y.o.Y to RM251.4 mln. Revenue for the period slipped 20.5% Y.o.Y to RM1.30 bln. (The Edge Daily)  

Source: Mplus Research - 15 Feb 2019